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Complicated IHT questions- unexpected trust in WILL

29 replies

Marshbird · 28/10/2024 18:46

Background: my dad passed away recently. He has his property in his sole name since mum died 20 plus years ago. When mum died all their assets were joint and went to him obviously exempt of IHT.
he has since been in a relationship with a partner of 20 years. She is a resident of another country outside of England. She and him viewed the,selves as common law spouses but never made legal partnership or marriage and she has never been on deeds of his house. However, they lived togther in her country, and coming over here to uk 3-4 months a year. She’s viewed dad’s house as hers for years. While they were over in othe country my eldest sibl8ng was DDs LPOA and basically ran the house and his accounts for him. Out of the goodness of his heart or parenteral duty 🤷🏼‍♀️😵‍💫. Sadly dads spent last 4 yard in care home with dementia. Partners been coming in and out of uk for periods her visa will allow but didn’t move here permanently at any point. Should add she has her own house in her country - sole tenant equivalent.

issue
so DD has made an absolute quagmire of a will. He could have left house to her outright but didn’t. It now goes in trust for her to continue to live in or use as “holiday” home she has been doing for rest of her life. And then at her death, or if she wishes to sell, it’s sold and proceeds split between whoever is surviving out of her and my siblings and me equallly. My elder sibling and his partner are joint executors and trustees of this trust. My sibling knew nothing at all about this before DD died, DD refused to talk to anyone about his will, dying, funeral etc.

on face of it ok…BUT, she is a good deal younger than dad and very fit and healthy. I can see my poor elder sibling in his 80s still trying to manage to run a house in good order with a 90yewr old woman. Dads effectively stuck him to her for the rest of her life. There is nothing in the wording of the trust in the will to say what would happen if she, life dad, lost mental competency, or even in her 90s couldn’t cope with running the house on her own. She has no children, and nearest relatives more than 300 miles from DD property. Whilst it says she responsisble for paying house related stuff how on earth will this work in practice if she is both beneficiary and trustee of this trust? Anyone have experience of this- how to make those arrangevents work. I naive believed DD couldn’t do something like this as it places a “burden” on the final beneficiaries- and it’s a massive burden particualrly on my eldsest sibling

And then I have a whole bunch of questions around what happens to IHT, with respect to the housing allowance. Does this reduce IHT down for both my mums share and dads share as he’s not leaving house direct to his children? I asked this but eldest sib doesn’t know and is working on a £350k allowance which isn’t taking into account mums unused allowance. He’s not best with financial stuff 🤯🤷🏼‍♀️

and what does it mean for us siblings in terms of theoretically owning a second home for years …what if roof leaks and she doesn’t want to fix it, will we have to pay if she’s too old to take to court? Do we pay capital gains on it form our own allowances once it is sold if we’re even still around. What happens if she looses mental competency and is never going to use it agian but can’t explicitly tell us we can then sell?

? I’m thinking of everything thst can go wrong with this hair brained scheme, and just don’t understand how a solicitor could have written this without saying to dad he needed to determine all this stuff and have a conversation with at least eldest sibling on whether it was fair to burden them.

I’ve gone form mourning dad to being frankly angry with him …which is not what I ever expected.

anyone out there know anything about this? Anyone shed light on whether this is standard where it’s not a marriage or out own mother or blood relative involved as benefactor of trust and executor and trustee!

OP posts:
Dinnerplease · 02/11/2024 10:38

Yes, my mum and her husband have one of these in place. After the second one dies, or it's sold, the property is split 50/50 between my mum's offspring and her husband's. It's predominantly my mum's property anyway, financially.

I hadn't thought about maintaining it if he outlives her, I don't think that's really a concern. It's the same as any other property, surely, in that once you inherit it you just get it in whatever condition it's in.

Each of their wills has one of their children each as an executor and a third person. They become the trustees.

HelloMyNameIsElderSmurf · 02/11/2024 13:35

If there is no trust set up, then the house isn't 'in trust'. A trust can't be a vaguely written clause in a will, it is an actual legal entity.

It sounds like either you haven't found the trust info, or your dad meant to set up a trust and didn't get round to it, or he's had some really bad legal advice and thought the will was all he needed to do.

With my situation the trust was all set up pre-passing, but we still had to register it with HMRC and do a couple of other bits and pieces.

I can't stress this enough: legal advice. As executor, your brother is on the hook for any unpaid tax on this, it is him HMRC will chase and 'I don't like dealing with legal stuff' is not a protection for him.

Caterina99 · 02/11/2024 17:18

Disclaimer - I am not a lawyer!

It doesn’t sound like an official trust has been set up. It sounds like your dad has left the house to you and your siblings (possibly his partner too?) but she has a life interest over it. This situation is not uncommon.

Definitely try and persuade your sibling to get some actual legal advice. It will probably save you all money anyway if they have no idea what they’re doing!

It’s entirely possible that the partner will not want to come to the house very often and an agreement can be made between you all to sell it. Now is probably not the best time to have that conversation, but things will settle down.

LavenderFields7 · 02/11/2024 17:38

There’s quite a lot of issues here. And a warning, a solicitor will cost A LOT to sort this mess out. If you can all meet amicably to sort this out and come up with a plan beforehand you would be in a better position.

Unused Spousal Allowance: Since your dad inherited everything from your mum tax-free under the spousal exemption, her unused nil-rate band should, in theory, be transferable to his estate, which can increase his estate’s IHT threshold by up to £325,000. If this hasn’t been claimed, it’s worth confirming with a probate solicitor to reduce IHT liability.

Residence Nil-Rate Band (RNRB): Generally, the RNRB applies if a home is left directly to children or lineal descendants. Leaving the property in a life interest trust for the partner might complicate the use of the RNRB. However, if it’s ultimately inherited by children, part of the allowance could still apply.

Capital Gains Tax (CGT): As beneficiaries, if you eventually inherit the property and then sell it, you could be liable for CGT based on any increase in the property’s value from the date of your dad’s death to the sale date. CGT allowances may offset part of this, but it’s another element to consider in long-term planning.

Trust Expenses and Repairs: If the partner fails to maintain the house and the property requires significant repairs, trustees sometimes have discretion to dip into the trust’s funds to protect the asset’s value. However, if no such provision is outlined in the trust, and she doesn’t cover repairs, the trustees and final beneficiaries may have to cover costs to avoid the property losing value.

Seeking Legal Amendments: In some cases, beneficiaries or trustees can petition the court to amend trust terms if the setup is causing undue hardship or impracticality. While this is a formal process and may incur legal fees, it could be worth exploring if the trust’s current structure proves unsustainable for the trustees.

Good luck!

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