Estates for a Term of Years or for the Life of Another Person
24.A35. Regard must be paid also to estates for a term of years and estates for the life of another person. If the legislation fails to deal with these kinds of interest, avenues of avoidance of the life estate provisions will be opened up. For example, instead of settling assets on his daughter (aged 30) for life, a settlor may provide her with an estate for a term of 60 years. Other illustrations are mentioned in the following paragraphs.
24.A36. One approach would be to treat the estate generally in a similar manner to a life estate, that is to say, to deem the relevant assets to have been disposed of by the holder of the estate on the expiration of the term or on an earlier assignment or surrender, but to bring to charge a fraction only of the assets. The fraction would be the ratio of the term of the interest to the life expectancy of the original holder of the interest at the time the interest was created, such fraction not to exceed one. An alternative approach would be to bring to tax the whole of the assets. This the Committee considers too drastic. It prefers that the former approach be adopted. There should be a provision, however, that if successive terms are created which have the effect of giving the holder of the terms a life estate, the whole of the assets will be taxed on the expiration, assignment or surrender of the last such term or on the death of the holder, credit being allowed for any tax paid on the expiration of the earlier terms. The rules mentioned in paragraphs 24.A28–24.A34 in relation to life estates should be applied to interests for terms of years and interests for the life of another.