Readers' forum: Tangled trust

In 1998 a grandfather (X) created two interest-in-possession trusts from which he was not entitled to benefit. He and his daughter were trustees. One trust contained a life policy the other a single premium investment bond both on X’s life. Every year X withdrew £2 000 (the 5% tax-free amount) from the bond and paid £2 450 as the life policy premium. The daughter was the ‘current beneficiary’ of both trusts and entitled to 100% until November 2005 when by a revocable deed of appointment X replaced his daughter with his grandson as the 100% ‘current beneficiary’. Previously the grandson and others were ‘potential beneficiaries’. In April 2010 the grandson and a solicitor were made trustees.

In October 2010 the daughter died and her estate was dealt with by the same solicitor. Inheritance tax was paid on the estate and...