Inherited a property in Trust, can anyone advise?

[Puppyinaflat]

Hi all

I’m fumbling in the dark with an inheritance/property matter at the moment.

I’ll preface this by saying that I’m planning to consult the relevant professional(s), but I really don’t know where to start/who to direct my initial query to. I’m hoping that a fellow Mumsnetter has experienced something similar and might be able to point me in the right direction.

I’ll try to keep it as brief as possible while still laying out the facts; my mother died in April 2023. She and my father (still married) had mirror wills so we didn’t apply for probate when she died. My father then died in April 2024. My brother and I are joint executors of the will. We took the decision to pay a probate company to manage the process for us. Probate has been applied for and we’re expecting it to be granted around October time.

The ‘estate’ comprises of c.£325k in cash/savings/investments. There is also a property (worth c.£250k), but, in 2017, the property was placed into a Family Trust. The Trustees are my mother and my father (both now deceased), my brother and me. The Trust status means that the property is not considered part of the ‘estate’ from a probate perspective (and the probate company won’t deal with anything relating to the property).

The will leaves an equal one-third share of the ‘estate’ to me, my brother and my adult son (the only grandson). Because the property is in Trust, the ‘estate’ is only the cash/savings/investments. Technically, the property now belongs to me and my brother, but we plan to split the sale proceeds in line with the will (i.e. a one-third share for me, my brother and my son).

We want to sell the house ASAP. I’m already taking the necessary steps to have my parents’ names removed from the property’s Title Register and to correct my name/address on the document (they’ve both changed since the document was drawn up).

But we really don’t know who we need to work with to ensure that the process of splitting the sale proceeds three ways is done legally. Do we need to speak to a solicitor, and, if so, what specialism? Would it be more straightforward to have the Trust amended? Would we be better off speaking to an accountant (so we meet our legal obligations re. Capital Gains Tax, etc)?

My brother has suggested applying for a Deed of Variation for the will, but I don’t think that’s applicable here – we don’t want to change the will, the will is fine as it is and the estate will be distributed as my parents wanted.

Can anyone help (before my brain explodes!)?

You need a solicitor. Wouldn't this be seen as you and DB gifting a sum of money to your son?

Yes, technically we'd be gifting a third of the house sale proceeds to my son, but would it be a lawyer that would lead on that? I don't really understand what a lawyer would do in these circumstances, unless it was to draw up some kind of contract outlining the gift.

Would we also need an accountant (for the income/tax reporting, etc)?

This is what I'm struggling to understand.

I don't think it would be cost effective to try and change the details of the trust

You will need to sell the property and then each gift your son some money

The trust should have been completing a tax return annually

I would speak to https://gandertaxservices.co.uk/ - they specialise in trusts and we work with them for lots of clients

I agree that it wouldn't be cost effective to change the Trust (I don't know how exactly much my parents paid to set it up in the first place, but I understand it was above £10k).

Speak to a solicitor and ask them these questions.
Use professionals for legal opinions and advice.

My understanding is that the property can be sold and split between you and your brother.
The will says the estate is to be split 3 ways brother, grandson and yourself which is the rest of the money shares etc.
As the property is not part of the estate it doesn't need to be split with the grandson.

But please get professional help.

Bit of background: I remember there being some talk of a Trust, and I signed the Trust document back in 2017, but DB - aka "Golden Child" - steered the process entirely and I was kept out of it.

By the time my parents died, I'd completely forgotten that the house was in Trust. My brother also claimed he'd forgotten. The probate company informed me of the situation.

Since my father's death, I've been doing a bit of reading on Trusts, and I did read about the obligation to submit a tax return (although I understood that this obligation kicked in when the Trust had been in place for 10 years).

As far as I'm aware, no tax returns have been submitted for the Trust.

Thank you for the link: that's exactly the kind of help I was hoping for 🙂

Um.... yeah.... I'm asking if anyone can advise on who would be the right kind of professional to speak to......

You and your brother are now the trustees.

What are the terms of the trust, i.e. who are the "objects"? If the objects/beneficiaries of the trust are you and brother then the property can be appointed to both of you equally by yourselves. Then you can transfer the relevant share to your son/his nephew.

It all depends on the wording and structure of the trust, but it sounds like a reasonably straighforward one to me, i.e. you are both owners of the property now.

The gift of a share of the property to son/nephew is tax free provided neither of you dies within seven years.

DB and I did initially (and very briefly) consider whether or not we should/could split the proceeds of the house sale with my son.

However, we both know that my parents would have wanted their whole estate (house proceeds included) to be shared equally between the three of us, so in the end it was a no-brainer.

The dilemma now is who should we consult to make this happen?

We both know it's not as simple as "here you go, here's a briefcase with £80k in it".

DB and I also want to minimise our liability for CGT if at all possible.

In starting to think an accountant might be the way to go

Since you intend to sell the property, I'd suggest a solicitor would be the best bet. Get them to do the legwork -appointing the house to you from the Trust - dealing with the sale, organising the documentation, transferring the 1/3rd share of proceeds to Nephew/Son and so on. Solicitors also deal with tax issues if necessary. Ring around a few practices and choose one that can do the lot for you.

OK you will have a professional fee to pay, but less headaches in the end, and should anything go wrong, well you have someone to blame other than each other!

Your reply (thank you 😊) prompted me to read the Trust document more closely. I'll don't be honest, I find legal-speak difficult to grasp, so I've avoided trying to make sense of it before now.

Anyway, it turns out that my son is listed by name as a 'discretionary beneficiary'. But he's not listed as a Trustee.

Can you advise on what a 'discretionary beneficiary' is, in layman's terms?

Thanks so much 🙏

You definitely need to speak to a solicitor. But some general info on how Trusts work might be useful:

• When assets are held in a Trust the ownership is split between 'legal' ownership (broadly the responsibility to look after the assets, and the ability to enter in to transactions etc relating to them) and the 'beneficial' ownership (the right to the use and value of the assets- so basically who the assets or the value of the assets will eventually be given to). The Trustees (in this case you and your brother) have legal ownership so have an obligation to make sure that the Trust is administered correctly and the assets are dealt with properly. There will usually be a Trust agreement which sets out who the beneficiaries (who have the beneficial ownership) are. This is usually either named people, or groups of people (eg. children and grandchildren). The Beneficiaries can be Trustees as well. In this case the beneficiaries could be you and your brother, or could be the same people as the other assets are left to in the will, or could be something entirely different.
• The Trust agreement will set out how the Trust should be administered, when the assets can be distributed to beneficiaries, how the assets should be shared etc. It is possible that the Trust Agreement may allow the Trustees to change who the beneficiaries are, or how assets are to be shared etc but this is entirely dependent on what the people who set up the Trust included.

So in this case, the key things to find out are who the beneficiaries of the Trust are and what the Trust Agreement says about how and when the assets should be shared. It's possible that the Trust already provides for your son to have a share, or that the agreement allows for you and your brother (as Trustees) to arrange for this under the terms of the Trust.

It's not uncommon for people to transfer their homes in to Trust later in life to try to take it out of their Estate for the purposes of inheritance tax and/or whether it can be sold to fund the cost of care (although it's a complicated area and often doesn't work).

The property value seems quite low for the effort of putting it in a trust. Between your parents they had £1million IHT allowance so their estate of £525k is well within that. Was it so if one survived the other couldn't give their share away?

Thanks so much for this advice. I think the whole tax issue is why I couldn't work out if a solicitor or an accountant was the best person for us to work with.

We're definitely happy to pay for someone to take the strain for us.... hence paying a probate company to sort all that out for us!

If you gift 1/3 of the property now to your DS, I believe there will be tax implications.

Your DB may be correct, it might be easier to do a deed of variation for the will so your DS inherits the equivalent of 1/3 of the property value plus 1/3 of the £325k estate from the £325k (£191k) and you and your DB inherit £67k each from the estate plus £125k each from the £250k property.

I would expect a solicitors firm that offers estate planning would be the best option for advice on the best way to deal with things although it might be cheaper to ask an accountant the specific questions about the tax implications in the 2 scenarios ie if you gift your DS one third of the property or if you split the house proceeds between you and your DB and then do a deed of variation so your DS inherits a larger share of the estate instead. TBH HMRC are quite good at answering those kind of questions for free. They can’t give advice but can answer specific questions eg would your DS have to pay tax if you gifted him 1/3rd of the property?

Thanks so much for this, that's really helpful.

The beneficiaries of the Trust are me, DB and DS.

I'm trying to find the part in the Trust document which outlines how and when the assets should be shared, but I'm not having much luck. I'm actually waiting for a call back from the company who originally drafted the Trust. Maybe they can shed a bit of light of this.

Thanks again 😀

Um.... yeah.... a solicitor....

Any good local practice will advise, and will indicate if they don't have someone with the right competencies who you should try instead. An accountant may or may not be relevant, this is something a solicitor will tell you. There's enough flags raised in your brief description of the circumstances to indicate you need to stop guessing and/or taking advice from the internet as to what you should do.

I'm pretty sure it was to protect the property from being swallowed up by care home fees (my mother had chronic illness and it seemed like the need for care would be very likely).

That's good advice, thank you. I hadn't thought about using a Deed of Variation in that way. That might be cleaner and simpler (although that course of action might make my own tax bill - and that of my DB - higher)

I'm waiting for a call-back from the company who drew up the Trust documents initially. I can put all of this to them when I speak to them

@DogInATent OP has said she is going to seek professional help but is asking for advice on the best professional to advise her, a perfectly reasonable question when the situation requires both tax and legal advice 🙄 It also takes time to get professional advice… have you never been in a situation where something is playing on your mind and you can’t wait for an answer?

This needs legal advise. It depends how the trust is setup. The trust may well own the asset and thus you won’t be able to sell it, which is by design. Or it’s a different kind of trust and you’ll be just fine. All depends how it’s been setup.

You probably won't need an accountant as most solicitors firms that deal with trusts will have a team who can do trust tax returns etc. I would recommend finding a solicitor local to you who is a member of the Society of Trust and Estate Practitioners (STEP) you can find one here https://www.step.org/about-step/public

"Anyway, it turns out that my son is listed by name as a 'discretionary beneficiary'. But he's not listed as a Trustee."

You have to be over the age of 18 to be a trustee. Was he younger than that at the time? That would explain it.

You mention 'discretionary beneficiary'. From this I would assume that it is a discretionary trust. What this means is that the beneficiaries are not entitled absolutely to the assets of the trust or any particular percentage (unless the trust says otherwise) and the trustees can distribute the money how they see fit.

So, since you and DB are the surviving trustees you decide between yourself when and if any assets from the trust are distributed to any of the beneficiaries.

Unless the trust specifically mentions that DS should get a certain percentage then it is entirely up to you and DB as trustees to decide how much to give him.

"We both know it's not as simple as "here you go, here's a briefcase with £80k in it"."

Actually, it is. As long as both you and DB as trustees agree to do that.

"DB and I also want to minimise our liability for CGT if at all possible."

This can be a real issue. If there is no need to sell the house immediately then if one of you lives in the house as your main residence for a period of time then this will help with reducing the amount of CGT payable.