Solicitors Trust Document

SeniorSam

In saving inheritance tax, a Discretionary Will Trust has often been used, although recent tax changes are producing different advice now.

With many such Wills, the Executors are given the power to accept a charge or IOU (Promisory Note) in place of the nil rate band to satisfy the Will Trust and to shelter the nil rate band of the first to die, but a recent case has thrown up a question in respect of this which perhaps someone can help with.

The Promisory note drawn up by the solicitor has worded the document as a promise made by the widow to repay to the Trust the nil rate sum on demand.

No mention is made of what happens when the widow dies ....... in other words no mention of the debt being on her estate if not paid on demand.

I am concerned that there is insufficient wording in the document, particularly knowing that the solicitor in question was not initially aware of the IOU route when this was discussed earlier.

I have asked the question of the solicitor but had no reply so far but am I right to be concerned ?

Sam

localhero

Hi Senior Sam,

Until the last major IHT changes in October 2007, Will writing `professionals` were churning out this type of Will to couples whose assets exceeded the nil rate band.

Essentially they are an artificial device that allows the first spouse to die to leave assets up to the value of the nil rate band into a discretionary trust in their Will and for the trustees to be able to `lend` those assets to the surviving spouse - therefore being able to double up on the nil rate band.

This type of Will is now largely redundant - as in most cases more practical alternatives exist - although there will be plenty of couples that have these Wills already set up. These couples should now obtain professional advice as to whether these Wills are still appropriate for them.

Senior_Sam wrote:

I am concerned that there is insufficient wording in the document, particularly knowing that the solicitor in question was not initially aware of the IOU route when this was discussed earlier.

I have asked the question of the solicitor but had no reply so far but am I right to be concerned ?

Any practitioner drawing up these documents ought to understand how they work in practice, and so if the solicitor isn't able to answer a question as simple as yours - then yes, I think you have cause for concern. Unfortunately there are plenty more of these `professionals` around that are equally as incompetent. Thankfully we are now in an era where Wills should be more tailored to the client's circumstances, rather than this one size fits all solution.

Without seeing the Will I cannot comment on whether it is adequate or not (I've seen many that are not), but essentially the potential beneficiaries should be the spouse and other family members such as children and grandchildren. As you know, the Will should go on to say that the trustees (one of which may be the surviving spouse themselves) may lend the assets to the surviving spouse in exchange for an iou or accepting a charge.

You don't say whether either or both spouses have now died, but after the death of the first spouse the trustees must decide if they will `lend` the fund to the surviving spouse. If they do they will want to recover the money from their estate when they die so they must obtain an iou (or promise to repay) from them.

The Will should provide wide flexibility and allow for the trustees to charge interest or call in the loan. If the assets are loaned to the surviving spouse then the trustees must meet once a year to decide whether to call in the loan from the spouse - generally they won't until the spouse dies. Their decisions must be minuted. If the trust produces an income or a capital gain then the trustees must file a return to the tax man each year.

When the surviving spouse dies, their trustees will be obliged to repay the loan to the trustees of the first spouse and both estates will usually be wound up.

Senior_Sam wrote:

No mention is made of what happens when the widow dies ....... in other words no mention of the debt being on her estate if not paid on demand.

Usually the Will will be silent on this.The important thing is that between the deaths of the first and second spouse the trust is properly administered. It is not unusual for this not to be done and for the trustees of the second spouse to die to have a real mess to sort out - often because the trustees have not obtained correct advice from those that drew them up in the first place.

STEP practitioners are qualified, but there are many problems being caused by the average numpty high street solicitor or unregulated Will writers getting themselves involved in an area of law that contains many pitfalls.

In the absence of the full facts, I hope that helps.

Bob_the_Saver

Solicitors & Trust. Two word I would never use in the same sentence.

A friend told me that the definition of a shame is a bus load of lawyers going over a cliff - with an empty seat!

SeniorSam

localhero wrote: »

Hi Senior Sam,

Until the last major IHT changes in October 2007, Will writing `professionals` were churning out this type of Will to couples whose assets exceeded the nil rate band.

Essentially they are an artificial device that allows the first spouse to die to leave assets up to the value of the nil rate band into a discretionary trust in their Will and for the trustees to be able to `lend` those assets to the surviving spouse - therefore being able to double up on the nil rate band.

This type of Will is now largely redundant - as in most cases more practical alternatives exist - although there will be plenty of couples that have these Wills already set up. These couples should now obtain professional advice as to whether these Wills are still appropriate for them.



Any practitioner drawing up these documents ought to understand how they work in practice, and so if the solicitor isn't able to answer a question as simple as yours - then yes, I think you have cause for concern. Unfortunately there are plenty more of these `professionals` around that are equally as incompetent. Thankfully we are now in an era where Wills should be more tailored to the client's circumstances, rather than this one size fits all solution.

Without seeing the Will I cannot comment on whether it is adequate or not (I've seen many that are not), but essentially the potential beneficiaries should be the spouse and other family members such as children and grandchildren. As you know, the Will should go on to say that the trustees (one of which may be the surviving spouse themselves) may lend the assets to the surviving spouse in exchange for an iou or accepting a charge.

You don't say whether either or both spouses have now died, but after the death of the first spouse the trustees must decide if they will `lend` the fund to the surviving spouse. If they do they will want to recover the money from their estate when they die so they must obtain an iou (or promise to repay) from them.

The Will should provide wide flexibility and allow for the trustees to charge interest or call in the loan. If the assets are loaned to the surviving spouse then the trustees must meet once a year to decide whether to call in the loan from the spouse - generally they won't until the spouse dies. Their decisions must be minuted. If the trust produces an income or a capital gain then the trustees must file a return to the tax man each year.

When the surviving spouse dies, their trustees will be obliged to repay the loan to the trustees of the first spouse and both estates will usually be wound up.

Usually the Will will be silent on this.The important thing is that between the deaths of the first and second spouse the trust is properly administered. It is not unusual for this not to be done and for the trustees of the second spouse to die to have a real mess to sort out - often because the trustees have not obtained correct advice from those that drew them up in the first place.

STEP practitioners are qualified, but there are many problems being caused by the average numpty high street solicitor or unregulated Will writers getting themselves involved in an area of law that contains many pitfalls.

In the absence of the full facts, I hope that helps.

Localhero.. many thanks for your reply and I appreciate the fact that you have tried to explain the Will, although this is not actually an issue.

The question is in respect of the promissory note signed by the surviving spouse and the executors, who have power to acept an IOU or charge in respect of the nil rate band allowance which has been loaned to the surviving spouse.

Where that promissory note states that the loan will be repaid on demand, but does not state what will happen following the death of the surviving spouse, can the debt be claimed from the estate of that person following death or does the promissory note need to state this?

If you are able to answer this it would be appreciated.

Many thanks for taking time to reply when others have ignore the request.

Sam

localhero

Sam,

So long as the Loan Instrument states the debt is repayable on demand there will be no problem recovering the debt from the estate of the surviving spouse.

Troubled_Joe

Bob_the_Saver wrote: »

Solicitors & Trust. Two word I would never use in the same sentence.

A friend told me that the definition of a shame is a bus load of lawyers going over a cliff - with an empty seat!

What a thoroughly amusing person your friend is.

I bet he/she is the life and soul of the party as he/she regales people with wishes of death on specific groups of people based on their profession.

SeniorSam

localhero wrote: »

Sam,

So long as the Loan Instrument states the debt is repayable on demand there will be no problem recovering the debt from the estate of the surviving spouse.

............ Many thanks, I will rely on your answer as fact and act accordingly.

Sam

localhero

SeniorSam wrote:

Many thanks, I will rely on your answer as fact and act accordingly

Whilst I am flattered that you should take my professional opinion as fact, I would advise that you get all of the documents looked at by a competent professional and get something in writing so that you may get some redress if there is a problem later on.

Particularly in view of the fact that the solicitor who draw the Will up in the first place doesn't seem to be that clued up and seems reluctant/unable to answer your questions.