House held in trust

[Sweeterthantheroses]

I am in Scotland.

My father died recently and his will leaves everything to my mother (except for small bequests to the grandchildren).

Their house was in joint names and so his half goes to my mother and she will own it outright.

When my mother dies (unless she has to go into a care home and spends her money on that) there will be Inheritance Tax. My mother is in her mid 80s and currently in good health.

The solicitor has suggested putting the house into a trust, with my brother and I as trustees, I think to minimise future inheritance tax.

I don't fully understand this, but will be able to ask the solicitor when I see him.

I have one question I can't put to the solicitor. I think it's possible my brother's marriage is rocky. And I think that he might have financial problems, if not now, then definitely if he and his wife split up.

Is putting Mum's house into a trust wise? Shouldn't we just leave it in her name and pay the tax when the time comes?

Just pay the tax.

That would be my preferred option, but my brother seems keen on the idea of the trust, as per the solicitor's suggestion.

Also, although an inheritance at some point in the future would be nice, I don't need it. It's possible my brother's finances are more precarious and he might be counting on it.

I want to know more about the implications of my mother's house being in a trust.

If she is in her 80s and does have to go into a home would this be seen as deprivation of assets?

No idea. I'm assuming the solicitor wouldn't have suggested it if it was a deprivation of assets.

I wouldn't want her choice of nursing home to be limited in any way. She's in good health at the moment, but can't take anything for granted, given her age.

My understanding is you can ring fence the trust ie your mother could say she only wants the trust money spent on housing and it can only be used for your brother and / or you. Ie can’t be shared out in a divorce but maybe someone more knowledgable could tell you.

I can ask the solicitor these questions.

What I'm worried about, and don't know how to phrase the question is - if my brother is a trustee and his financial situation is bad, what are the implications?

There is normally a third party who is also a trustee - say a lawyer for example.
I'm not sure (maybe Scottish law is different) but I have some property and I investigated minimising the inheritance tax with a lawyer. She said as long as I am getting the benefit from the properties it's still part of my estate, in trust or not (in my case getting rent, though she also said if I just stayed in a holiday home for a few weeks a year too). So your mother will be living there full time and therefore has the benefit of it so it is still part of her estate. Otherwise surely everyone would just put their houses in a trust to avoid taxes!
There is also maintenance charges you will pay and LAWYER FEES attached to trusts. You have to pay the lawyer for any administrative tasks.
Ask the solicitor about all this. You can also refuse your part of the inheritance if you want it or most to go to your brother, but if he gets it before his marriage breaks down he may have to share it with his ex (but I have no idea on this aspect).

Thank you, ukborn.

I think the idea is that we would agree to a variation of my father's will, so that his half of the house would not ever become my mother's and wouldn't then become part of her estate.

But now I think of it, that seems a lot of effort for 50% of a house. She already owns half of it.

I think I need to be more clear about what is being proposed.

I love my brother but I don't want my share of the inheritance to go to him. I'd prefer anything I was entitled to to go to my children, rather than my brother. I would like to get an inheritance, I'm just not basing any of my future plans on getting one!

I was mostly concerned about being part of a trust on the basis that my brother is married and solvent, when both may be in doubt.

You need to explore the long term plans on the basis of what is the worst which could happen.
NB legal advice is best received as a written opinion on headed note paper signed by an insured professional.

Thing you cover are without a trust what happens whats, the associated cost.

With a trust there are 2 pathways and costs.
A) Mum (her estate) needs to sell the house for care home fees.
B) Mum leaves the house to you and your brother.

What is the process involved in setting up the trust?
Who gets a vote, who has a right to veto a decision, what conflict resolution process is needed?

What costs are involved in setting up a trust?
What is the annual running cost?
What are the costs to dissolve the trust?
What other costs may occur?

What is the current tax position, and tax consequences for everyone?
Who is responsible for tracking that the current legal and tax framework remains the same, eg as at 30 Sep gov will tax trusts at 90% how will you know?

Who currently pays for the physical upkeep so heat (preserves the fabric) and general maintance.
Will that change in the future if so who pays what?

If your mother has to sell the house to pay for nursing home care
How is the trust broken will that cause a delay in any sale?

Or Mum stays at home, dies and you both
•hold the house empty
•hold and rent or
•sell and split the cash

Have you/your brother a beneficial interest in the trust before your mother passes and is getting divorced/has a court judgment? What about after?
What about if one of you die when or will the house become part of your estate eg could you end up managing the trust with SIL while your mum is in a home.

If the estate is worth millions estate and tax planing can save money but normally wont benefit someone trying to avoid lower tax charges.

Thank you SolasAnla.

The estate is not worth millions. Not even one million. Not even close.

(Unless there's something I don't know about, but I think that's unlikely)

Sounds like this is all about avoiding care home fees. The first 650k of the estate will be free of IHT assuming your dad's estate went to your mum. www.gov.uk/guidance/transferring-unused-basic-threshold-for-inheritance-tax
A lifetime trust would still attract a CGT charge when property is placed in to trust and every 10 years.

Remember in Scotland you cannot disinherit your children. So a legacy will have to come to you, even at the legal minimum - it can't all go to your children.

If the estate is less than a million and is left to her children there won't be any inheritance tax to pay at all Is the solicitor fishing for more fees?

I don't know the situation in Scotland, but my parents did this many years ago on the advice of their lawyer. I told them.i thought they were nuts, especially as their small bungalow was never going to be subject to inheritance tax. But they went ahead.

Tbh, it's been nothing but trouble. My dad died 3 years ago, so his half of the estate went to me and my sister. Probate has been a nightmare, there has also been difficulties as my dad owned loads of very small shares (about £20k in total, half of which went to my mum and half to me and my sister). Every time my mum decides to sell some shares, we all have to sign to say we agree that the money should go into my mums account. They won't accept electronic signatures and my sister lives in Australia.

DH and I are in the process of moving, and this has become complicated as I now own part of my mums house, so it counts as a second property. Also, my Mum has let her house out as she has moved in with her new partner, so I'm technically a landlord even though my mum has sorted it all out, has the contract with the property firm, gets all the rent.

I would advise making sure you absolutely know what you're getting yourself into.

Nightmare. Don't do it unless the estate is well over a million

Thank you all.

Collaborate - I cannot imagine we would want to avoid care home fees. We would want to be able to choose the best place for my mother. If we successfully avoided fees, surely we would have less choice of care home?

This link you provided was helpful - my father used up part of the threshold leaving legacies to the grandchildren. But even so, that link suggests the amount of Inheritance Tax would be negligible.

titchy - I think my mother's will leaves 1/4 each to my brother and I and 1/8 each to the grandchildren. I haven't seen the will but I think in general terms it's something like that.

I've obviously got a lot of questions to ask the solicitor!

It doesn't sound like a way of reducing inheritance tax, to be honest. Not only will you have your fathers nil rate band (or what is left of it), but also your mother's (so £650k) less any individual bequests your dad made), but you will also have both of their residence nil rate band as his share of the house was left to his spouse. (So up to another £350k). Putting his half of the house in trust would likely remove that relief (or that his unused nil rate bands pass to your mother), so I can't see why it would be a good idea?

My parents each owned 50% of their house as they were Tenants in common (uk). When Dad died his 50% came to my sibling and l. So mum owned 50% and we owned 25% each.

Unfortunately DH left me.... on sorting our finances he was entitled to half of my ownership of my share which equated to about 60K.

It caused a lot of stress and my Mum was devastated by it all.

It's also caused me issues with claiming benefits as l own a house l don't reside in ... and so it's classed as capital.