Same-sex couples should review trusts before getting married

Thu 02 Oct 2014

The Marriage (Same Sex Couples) Act 2013 (MSSCA 2013) came into effect on 13 March 2014:

• enabling couples of the same gender to be legally married in the UK; and
• recognising overseas same-sex marriages as valid in the UK.

The tax statutes have not been amended to take the MSSCA into account at all: a same-sex marriage has full legal status. This has the potential to cause practical problems similar to those that arose when civil partnerships were introduced on 5 December 2005 by the Civil Partnerships Act 2004 (CPA 2004). After CPA tax statutes were amended to ensure that civil partnerships would be treated equally with marriages for tax purposes, for better and worse.

Settlor-interested trusts

Income of a trust in which the settlor retains an interest is assessable on the settlor by ITTOIA 2005 s 619. ITTOIA 2005 s 625 deems the settlor to have an interest if any property or income of the settlement may become payable to their spouse or civil partner in any circumstance. This applies equally to settlements made before 13 March 2014 as it does to settlements made afterwards.

One or both of a couple who are in a relationship may have created a trust under which the other is an actual or potential beneficiary but also included the normal clauses necessary to exclude the possibility of benefiting through a future spouse.

Now the settlor could be in double jeopardy because;

• by getting married they create a situation where their spouse is an actual beneficiary, so triggering s 619 via s 625; or
• the terms of the trust are so drafted as to exclude a spouse from benefit with the result that neither settlor nor spouse is now in a position to benefit under the trust.

Civil partners’ wills in limbo until 10 December 2014

Civil partners should have made wills, just as married couples should but under the present law there is uncertainty about how the wills of a couple in a civil partnership will be treated if they marry. Logic suggests that the rule that wills become invalid on marriage should not apply but legal opinion is that this is not certain and the law is to be changed to make it certain that the will of a civil partner who marries his/her partner will remain valid. Unfortunately the draft statutory instruments were only laid before Parliament on 3 July 2014 and they are not set to come into effect until 10 December 2014.

It is therefore prudent that any couple who have entered a same-sex marriage should, like any other married couple or civil partnership, take legal advice on the validity of their wills and if necessary amend or renew them.