Anything further needed...

Bernythedolt

...beyond the Will? Can anyone advise please?

Synopsis: Discretionary trust set up in deceased's Will, to avoid inheritance tax. Probate has been obtained. Is the Will alone now sufficient proof of a trust existing, i.e. is the trust now fully in place, or is there some other legal formality to go through to somehow finalise or record the establishing of the trust?

Fuller details: My wife's father passed away in 2009, leaving her half his house & estate in trust, written into his Will as a discretionary trust (approx value £200k if that helps). His widow, my wife's mother, continues to live in the house. My wife's parents had their house deeds amended showing them as tenants-in-common some years before he died, in conjunction with writing their (matching) Wills.

They paid for legal advice for all this at the time. The idea was twofold, to avoid a potential double dose of inheritance tax and to limit the potential for the local authority to take the whole value of the house as care fees for the widow at some later date. I understand this was a standard and legitimate tax avoidance practice back then.... and it was his express wish to his only child.

My wife (as trustee and executor) and I didn't understand the intricacies of that part of the Will, so recently approached the solicitor's practice who drew it up. Their advice, after reading the Will they'd drawn up, was along the lines of "Yes, we can see this is a discretionary Will trust, quite standard in its day, and we can draw up the trust papers for you now.... at an approx fee of £1500".

After some internet research, I'm now beginning to think the Will itself forms the trust document, is entirely sufficient as it stands, and my wife doesn't actually need anything further to safeguard her interests. Am I correct, or does she now need some further legal document or instrument, besides the Will, which somehow more formally sets up the trust?

I suppose another way of looking at this is -- if the local authority or anyone else came asking for the entire value of the house to underwrite care fees, would showing them a copy of his Will be sufficient to demonstrate that my wife owns half of it, so they can't touch that half? Or do we need something more formal?

The same solicitor also wanted approx £600-£800 to obtain probate, something my wife then went away and achieved very easily by herself and for next to no effort or cost.

We want to get his affairs in order, and are quite happy to pay whatever that takes, but obviously don't want to be shelling out for unnecessary work, or unreasonable fees. Based on the probate example, I'm rather sceptical.

What (if anything) do people generally pay to "draw up a trust" after somebody dies with what I think is also termed a testamentary trust already written into his Will?

If appropriate -- is DIY a possibility and if so any advice on where we start please?

Thanks for any advice.

John_Pierpoint

In which month of 2009 did dad die?
What was the total value of dad's estate?
The intention was to give mum the use of half of the house for the rest of her days?
What is the date of signing of the will?
The whole house is worth about 400K and half of it is in trust? Does the trust include any other assets?
The trust has no income as there are no other assets than the half a house in it?
Has anyone made any changes (yet) to the Land Registry entry?
What became of the rest of Dad's estate?
We know that mum owns half a house (ie about 200k in value) what do you think her net worth is?
Is your wife the sole trustee of the supposedly discretionary trust?
(you might want to post the actual wording?)
What is the wording for the ultimate disbanding of the trust (a "perpetual" trust cannot be created)?
Assuming that you predecease your wife - where would you expect your wife's wealth to devolve?
Does your wife have children? (Sorry to put it like that but you get my drift?)
What does you mother-in-law's "mirror" will do now? Is it still appropriate?

purple_haze

On the assumption that the will was in a standard format (80 year nil rate band discretionary trust, spouse and daughter discretionary beneficiaries) – and although your wife appears to have taken out the grant in her sole name, it is likely that at least one other, probably your mother-in-law, will have been appointed trustee and will be a trustee even though they haven't taken out the grant (this will depend on the wording of the will), your wife having taken out the grant should administer the estate, which amongst other things would involve transferring the £200k of assets to the discretionary trust. So there are two options:

1. Your wife does nothing and the estate remains unadministered. Should your mother-in-law go into care, she will still be assessed as only owning half the house and, as you say, the will is the trust deed and is evidence that your father-in-law's share of the house was left to the discretionary trust. The fact that the estate is unadministered and the assets of the estate still vest in your wife as executor is irrelevant. So inaction by your wife would protect your father-in-law's share of the house from being assessed as your mother-in-law's asset;
2. Your wife administers the estate. This would involve collecting in all the assets, settling liabilities and transferring the residue to the trustees in the will to hold on discretionary trusts.(There is presumably some cash/investments in addition to the share of the home.) Those trustees should decide how to deal with these assets:leave them in trust , appoint them to beneficiaries either absolutely or for life, use the debt/charge provisions which are probably in the will? The most common solution would be to appoint the half of the house to the widow for life to preserve most of the transferable nil rate band for inheritance tax and appoint the cash/investments to beneficiaries absolutely to avoid the expense of an ongoing income producing discretionary trust needing to submit annual tax returns and having most of its income taxed at 50%.

In all honesty, you'd need professional advice on this and £1,500 doesn't seem out of the way.

John_Pierpoint

Presumably as "dad" died something like two years ago, by now someone has had a go at filling in the dreaded IHT400 / IHT205 for the potential first beneficiary in the Q - the tax man (The latter form applies when the estate is clearly less than 312/325K the nil rate band for IHT) just to get probate?

I think we need to know what has been done already?.

Bernythedolt

Thank you both for these replies. Purple Haze -- the assumptions in your first paragraph are spot on... my wife & mother-in-law were indeed appointed as the executors and trustees as you surmise, although aged M-I-L (80+) did verbally rescind her role in favour of my wife in both our hearing, understandably at that time of life and having just been bereaved.

Although my wife gathered all the detail for probate and submitted the IHT205 form, her mother did feel well enough to accompany her to the probate interview, so it transpires that the grant was issued in both names. I’d value your opinion on the different bearing that might have, if any.

I have just conferred with my wife and she does favour your option 1, the “unadministered” path. It's the way she was already inclined to go, so it's really good to learn that it is a viable and acceptable proposition, not breaking any rules, and that her share of the house remains safeguarded. Thank you for posting the options so clearly.

At risk of trying your patience.... any advice please on when my wife ought to have the house deeds amended to replace her father's name with her own? May it wait till mother-in-law passes on, or better to do straight away?

In answer to some of JP’s questions, her father actually passed away in Feb 2010 (apologies for my minor error there), his half of the house was valued at £175k and the remainder of his estate comprised cash/equities/insurance/belongings valued at £48k in total. Naturally my wife is content that her mother as joint beneficiary should have prior claim on that £48k, so (rightly or wrongly?) has left it in her care to use as she wishes. We feel M-I-L’s estate is likely to fall under the IHT limit when she passes on.

The intention was to give mum the use of half of the house for the rest of her days? Yes.
What is the date of signing of the will? Will not currently to hand (M-I-L holding it), but believed approx 2000.
The trust has no income as there are no other assets than the half a house in it? If set up formally, I’d guess it maybe ought to comprise half the house plus £48k, but father-in-law’s intention was always for his wife to use the money, daughter to have the half-house.
Has anyone made any changes (yet) to the Land Registry entry? No – but this does prompt my supplementary question above, thanks.
What became of the rest of Dad's estate? Shares disposed of, joint and sole accounts amended to be in his widow’s sole name (as he would have wanted).
We know that mum owns half a house (ie about 200k in value) what do you think her net worth is? £175k house, estimating £100k remainder (inc. the aforementioned £48k).
Is your wife the sole trustee of the supposedly discretionary trust? No. Trustees are his wife & his only child (my wife). Beneficiaries are those same two, and failing them my wife’s issue (i.e. our only daughter).
What is the wording for the ultimate disbanding of the trust (a "perpetual" trust cannot be created)? Can find this and post if still needed. I know it mentions 80 years.
Assuming that you predecease your wife - where would you expect your wife's wealth to devolve? Her (our) only child.
What does you mother-in-law's "mirror" will do now? Is it still appropriate?
That’s good food for thought and I guess the time is now about right to broach that delicate subject and review matters.

I'm really grateful for the advice so far, thank you.

purple_haze

It would be quite simple to amend the title at the Land Registry now. Your mother-in-law as the sole surviving holder of the legal title could execute a transfer in form TR1 to herself and your wife. They would then hold the property as trustees, half for your mother-in-law, half for the discretionary trust. This should be recorded in the TR1 although it would not show on the Land Register.

Or things could be left as they are and the title could be sorted out after mother-in-law's death.However, a grant of probate in mother--in-law's estate would be needed for this, whereas it would not be necessary if the title were transferred whilst she was alive (although it might be necessary to obtain a grant in her estate for other reasons).

Bernythedolt

Once again this is really helpful -- thank you PH.

Dillence

My parents had a similar will with a trust. My dad died in 2009 and our solicitor told us that for tax purposes we should set up the trust. (this confused me as I thought that the will set up the trust) The cost was £600 to transfer the house to my mothers/trustees name and then to set up a deed of appointment. I could PM you a copy of the email that our solicitor sent, it may help.

Unfortunatly 10 months later my mother died, so we only needed the deed of appointment.

Hope it helps.

Mikeyorks

My parents were virtually the same. Even to the uncomfortable proximity of deaths.

On the first death (my father) I was a bit taken aback to find his 50% of the property going into Trust. My Mother appeared equally bemused. Despite they had mirror Wills and a confirmatory letter from the Solicitor clearly setting out what they had agreed to! It didn't help that initially I was given an old Will .... with a traditional beneficiary line solely to my Mother.

My Mother was a Trustee and the sole Executor .... and with 2 more Trustees to be appointed from partners within the firm of Solicitors. Not really an issue on the first death .... but on the second death that meant the Trustees were solely the Solicitors. They're family Solicitors but, nevertheless, the implied costs / delays / total lack of family control on the second death, filled me with horror. Fortunately shared by my Mother who appeared to have no idea what they had signed up to - or why.

I handled the Probate for her and simply got the Solicitors to formally rescind their interest. That meant the Trust was established with her as sole Trustee. The Solicitors confirmed the Trust was established via the Will and nothing else needed to be done.

She then had the Solicitors draw up a fresh Will for her, simply leaving her estate to her 3 children. On her death the Probate was straight forward and I simply kept the Solicitors in the loop by having them d/w the sale of the house

Bernythedolt

Thanks to both for this latest advice.

Dillence - £600 sounds a more reasonable target to aim at if she decides to take the solicitor route, because I get the impression ours should be a relatively simple case to deal with.

"I could PM you a copy of the email that our solicitor sent, it may help" - Grateful if you wouldn't mind, all advice welcome at the moment!

Mikeyorks - "The Solicitors confirmed the Trust was established via the Will and nothing else needed to be done" - That was the thrust of my question, so good to read this further confirmation, thanks for this helpful contribution.

John_Pierpoint

As there does not seem to be an IHT issue with the estates of your mother-in-law and father-in-law, much of this seems like unnecessary administration unless there is a real threat of local authority care using up more than the spare savings. (As one of the administrators in the current BBC1 series of "Heir Hunters" observed, on being told that the intestate had been living in a care home for three years - "that's 30K a year off the value!").
Is your present objective to do a generation hop, to avoid IHT on your own generation's IHT in 30 (?) years time, so making your own child a "trustafarian" ? [Whole new topic]

Just for the record here is some explanation of my thoughts of last night:

Bernythedolt wrote: »

The intention was to give mum the use of half of the house for the rest of her days? Yes.
What is the date of signing of the will? Will not currently to hand (M-I-L holding it), but believed approx 2000.
The trust has no income as there are no other assets than the half a house in it? If set up formally, I’d guess it maybe ought to comprise half the house plus £48k, but father-in-law’s intention was always for his wife to use the money, daughter to have the half-house.
Presumably this was done initially mainly to save potential IHT when the nil rate band was less than quarter of million and there was no transferable nil rate band between spouses?.
The law changed in October 2007 (thanks GB it saved me as executor a 6 figure sum of family money) From that time it might well have made sense to change the will to put just the half house into an interest in possession trust for MIL ? In the present form the trust has to be administered by the trustees and pay 50% income tax ?? – so that the beneficiary can reclaim (some of) what is paid out by the trust ?? Hassle??
http://www.hmrc.gov.uk/rates/iht-thresholds.htm
Has anyone made any changes (yet) to the Land Registry entry? No – but this does prompt my supplementary question above, thanks.
I’m not sure about this, but at the end of March 2008 (?) the rules for land registration were changed – I think trustees are now required to register their interests and any change in trustees. The old trick of sticking an assent into the deed box and carrying on regardless, when an owner died, went out in the 1990’s.What became of the rest of Dad's estate? Shares disposed of, joint and sole accounts amended to be in his widow’s sole name (as he would have wanted). Should these things not be in side the trust strictly speaking? Should
We know that mum owns half a house (ie about 200k in value) what do you think her net worth is? £175k house, estimating £100k remainder (inc. the aforementioned £48k), so no IHT liability anyway on the face of it?
Is your wife the sole trustee of the supposedly discretionary trust? Could be tricky if she fell under the proverbial bus – it has happened to a co-trustee of mine!No. Trustees are his wife & his only child (my wife). Beneficiaries are those same two, and failing them my wife’s issue (i.e. our only daughter).
What is the wording for the ultimate disbanding of the trust (a "perpetual" trust cannot be created)? Can find this and post if still needed. I know it mentions 80 years.
Assuming that you predecease your wife - where would you expect your wife's wealth to devolve? Her (our) only child.
What does you mother-in-law's "mirror" will do now? Is it still appropriate?[FONT=&quot]
[/FONT]That’s good food for thought and I guess the time is now about right to broach that delicate subject and review matters.

If Father-in-law has not yet been dead for 24 months, there is still time to make a deed of variation to change the will to make it say exactly what you all want.

Just a word of caution, and I would be interested in anyone else's observations. When my father died intestate he automatically created an interest in possession trust, that we his children & widow all agreed would consist of half the house. Thirty something years later that half a house had increased in nominal value some 50 times - HMRC, realising that there was a considerable 6 figure sum of tax at stake, got a bit "picky" about the legal situation.
It seemed that they had either lost their records or were hoping we had lost ours.
Fortunately I had kept copies of everything somewhere in the loft and they backed down.
On these figures it is unlikely that IHT will be an issue, but would it be good practise to make some sort of deed to lay out exactly what the executors/trustees did in 2011, just in case?