Discretionary Trust - Surviving spouse living in property

nivek999

In November 2003 a discretionary trust was set up with half of the marital home being placed in trust. The trustees were the surviving spouse and the children. The surviving spouse lived in the property. as she owned half of the property outright. She died in January 2007.
Could someone please advise as to the position that Revenue and Customs take on this matter, as to IHT, and what documentation they may want to allow the half of the property in trust not to be counted for tax purposes.
Thanks

Jake'sGran

I assume all the assets now pass to the children and if they exceed £300,000 i.e.the current IHT limited there will be 40% tax to pay on the amount above 300K. It all depends on the terms of the trust. There are a few people who contribute to this board who know a lot about IHT and they will probably explain better than I can. We each own half of the property as Tenants in Common too. It is a wise thing to do if the assets of the husband and wife exceed the IHT limit. You could have a look at the Inland Revenue IHT page for more information about what will happen now that Mum has died.

nivek999

The actual question that the Revenue have asked is :-
"How did the trustees exercise their discretion to allow the deceased to have sole occupation of the property? Please provide a copy of any written documentation evidencing this."

I hope this makes it clearer.

Thanks

Jake'sGran

nivek999 wrote: »

The actual question that the Revenue have asked is :-
"How did the trustees exercise their discretion to allow the deceased to have sole occupation of the property? Please provide a copy of any written documentation evidencing this."

I hope this makes it clearer.

Thanks

This aspect is written into our wills. If you just decided amongst yourselves will that no do for the IR? Otherwise I can't think what to suggest.

EdInvestor

If the trustees don't know, they should ask the soliciutor who drew up the trust.

Willman_Rodders

Hi nivek999,

The will of the deceased is the document that sets out the skeleton terms of the discretionary trust. The trust itself will then have been drawn up at the time of the husband's death, and hopefully its creation overseen by a solicitor.

The Customs and Excise authority are looking increasingly at the operation of these discretionary trusts. What they are looking for, I believe, are what they consider sham trusts. Sham trusts are trusts that do not really exist, other than to avoid paying IHT.

The Trustee Act 2000 sets out specific requirements for the operation of a trust. The rules include ...
1. the submission of Annual tax returns;
2. the trustees meeting at least annually to discuss the composition and investment strategy of the trust;
3. professional advice being sort regarding the composition of the trust fund where the trustees are not suitably experienced in the art of investment; and
4. formal minutes being kept of the meetings listed for (2) above.

Looking at your question I wonder if it is these minutes that Customers and Excise wish to see? Should they minute the decision to let the surviving spouse continue to live in the house?

Before responding to their question I suggest you speak to a solicitor experienced in these matters (Care - in my experience not all solicitors have this experience.)

insured

I think what they mean by what documentation they require is the trust deed itself which should show the terms of the trust and the assets at the beginning of the trust.
I agree with William Rodders you need to speak to a professional.
If it was necessary to do this to avoid IHT, then the estate would be large enough to warrant professional advice.
You need to speak to a solicitor who is a STEP member.(Society of Trust and Estate Practicioners)
They are solicitors who specialise in estate and trust matters.
Hope this helps.