Nil Rate Band Discretionary Trust Deed of Appointment

Savvy_Sue

Just a question, but did the original will appointing Mum and solicitor as joint executors name 'Fred Bloggs of Bloggs & Co' as the executors, or just 'Bloggs & Co' or something similar?

You can see where I'm going with this - if it's a named partner who has now retired, they can (and should in this case) be asked to renounce. Mum then appoints a new Rottweiler of a solicitor who really knows what they're doing to both deal with the probate and get costs back from the original incompetent.

SeniorSam

Agreed, but the most important matter is to make a formal complaint to the solicitors. Cases of neglegence like this need to be jumped on and the Solicitors Practice brought to book.

In my opinion these clients have been used as a 'gravy train', for years longer than they should. The train has only stopped on occassion to pull the wool over the eyes of their clients. Shocking.

If the Senior of the Practice was unaware of the actions taken by the particular solicitor in question, who has now retired, they should immeciatly investigate and act with honour to correct the faults and recompence the clients for the lack of service and trust. This may avoid public ridicule of the whole Practice.

Sam

DRS1

It may be worth checking the original nil rate band trust language to see if a deed is actually required for an appointment of trust property out of the trust. There may also be some mileage in arguing that the letter amounted to a waiver of the loan - not sure if that needs to be by a deed.

DRS1

OK forget the loan waiver point - it seems that needs to be by deed.

becrrw

Sorry I've had to take a few days away from here as bringing it all up again has resulted in me being consumed by the stress of it all once again!


I have just been updated by my Mother who has received a reply from the solicitor. I shall first copy the relevant part of the letter from HMRC to the Solicitor last month, then the letter from the solicitor to HMRC today and finally the letter sent to my Grandmother which was sent to HMRC in January in absence of the Deed of Appointment.


Letter from HMRC February 2015


The Accountants have informed me in their letter dated November 2014 that the loan of £x as per the Loan Agreement from September 2007 was repaid before (Grandmother's) death.


The letter dated December 2007 provided by you states that there has been a Deed of Appointment from the Discretionary Trust to the late (Grandmother). Would you please let me have a signed copy of the Deed of Appointment?


Solicitors Letter to HMRC today

The letter of December 2007 addressed to (Grandmother) refers to only one deed and that is the deed acknowledging the loan (referred to in the final sentence of the first paragraph). This does not strike us as being the same as a Deed of Appointment but it is the only deed mentioned in the letter. Could you please clarify exactly what it is you wish to see.


Letter Addressed to Grandmother December 2007


You may recall that after we completed a Deed of Variation of your late husband's Will, a Nil Rate band Debt Scheme Will was substituted and in this a legacy equivalent the Nil Rate Band at the date of your late husband's death, was provided for and this legacy was to form the fund in a Discretionary Trust of which you, your daughter and her children are potential beneficiaries. The Trustees subsequently agreed that you could borrow that sum from the Trust and on completion of your purchase of your new flat you executed a deed acknowledging the loan.


I am pleased to say that the Trustees have now decided to appoint that sum to you absolutely. The effect of this therefore is that the acknowledgement of the debt which was signed by you at the time of your recent purchase is redundant. All the monies now in your name, some of which originally represented your husband's share of joint assets are yours absolutely free from any charge to the Executors of his estate.


Ok, that's the end of the letters! The solicitor is not wrong with his response - as you can see the letter sent to my Grandmother in December 2007 does only mention the one deed however it's not the final sentence of the first paragraph that HMRC or I have picked up on, it is obviously the first sentence of the second paragraph! Particularly the part which states 'the Trustees have now decided to appoint that sum to you absolutely.'


Any further advice given this latest update would be greatly appreciated. It seems fairly obvious to me that it will now be a further few weeks before the Solicitor receives a reply from HMRC stating quite clearly what they want to see is the same document they asked for in the first place - the Deed of Appointment! It also now seems very that there isn't one or the Solicitor's letter would have said 'please accept the enclosed document as requested'!!!

SeniorSam

You are correct. The solicitors did not create a Deed to reverse the original Will and Discretionary Trust that was created automatically on your Grandfathers death. Therefore the 'Absolute Gift' would seem to be flawed. If it is not, then the protection of your Grandfathers property value is lost.

Soliitors are well aware that to change a Trust, there needs to be a Deed of Variation, which needs to be made within two years of death to make the changes, that needs to be signed by all Trustees, which clearly this is not the case.

I feel sure that the Revenue will have already understood this, but are allowing the solicitors to show the Deed if it was created.

As mentioned before, what was the purpose of reversing the original Will of your Grandfather. His actions protected the value of half of the property for the ultimate beneficiaries, which was why the Will was drawn up originally. Did those beneficiaries agree to waive their inheritance and make the loan an absolute gift? I think not.

No doubt in my mind that this is a serious error by the solicitors.

Also, how come the Accountants created a letter to say the loan had been repaid. If that was the case, the solicitors should have documentary evedence that this was the case. But why would it be repaid if the loan had been made into an absolute gift?

Without further information it looks to me very much like there has been some collusion on this? Was it the same Accountant as before?

Sam

becrrw

Thanks for your reply Sam. Whilst I do not have the paperwork I believe the Deed of Variation on my Grandfather's Will was made in late 2005, a few months after his death but within 1 year. That December 2007 letter to my Grandmother refers to the fact that they did create that previously.


I also have one further photocopy of a letter addressed to my Grandmother in June 2005 suggesting that the solicitor prepares a deed of variation to amend my Grandfather's Will and create a Nil Rate Band Discretionary Trust. In it they would sever the joint tenancy of their house so they were deemed to have owned it as tenants in common in equal shares so that he could leave his half of the property to Trustees rather than it pass automatically to my Grandmother. This letter leads me to believe the Trust would have been created shortly after, possibly Autumn 2005.


Aha I've just found something in the letter from HMRC dated May 2014. '


The Deed of Variation dated December 2005 severed the jointly ownership of the property and redirected the nil band rate at his death into a discretionary trust. What happened to (Grandmother's) share? I do not see it included in her estate.'


The solicitors response to this was that the house was sold shortly after Grandfathers death and Grandmother purchased with the sale proceeds the property she was occupying at her death.

becrrw

Sorry I just realised I didn't answer your other questions.


My Mum as the only beneficiary/Trustee would have absolutely agreed to gift anything to her Mother if she needed it to buy her property. That's the only explanation I can think of for why that would have been necessary but I have absolutely no knowledge of what was explained/discussed regarding this at the time and my Mother has no recollection as it was a long time ago now.


With regards to the query about the accountants, I've just looked up the email which contains their letter and it is 8 pages long and made very little sense to me! I will try to filter for you but I apologise in advance as it's going to be quite long winded...


The provisions of the deed of variation dated December 2005 appear to have been given formal effect by the Executors of (Grandfather's) Will (as varied) in a charge dated 11 July 2006. Under this charge the Executors (Solicitor and my Mother) required the Trustees of the NRBDS to accept a debt in the sum of £x (I think this was the nil rate band allowance) instead of the pecuniary legacy being paid in cash.


He went on to explain that it was unlikely that the one half share in the house would have met the full value left to the NRBDS but says it's not a problem as clause 9(a) of the Deed of Variation provides that assets in the residuary estate can be charged with payment of a sum of money "equal or less than the amount of the trust Legacy".


Subsequent to the charge dated July 2006 it appears from the Solicitors email dated July 2014 that the house was sold in 2007 and Grandmother bought a flat. This dovetails with the loan deed of September 2007 which lends Grandmother the funds that should have been deposited in the NRBDS.


I assume that the fund never were deposited in the NRBDS, but that Grandmother sold the house and used the proceeds to buy the flat. The charge over the house held by the Trustees of the NRBDS will then have been replaced by the loan deed of September 2007. The Deed of Arrangement permits the Trustees of the NRBDS to accept any substitute debt for the original charge.


He goes on to explain the Indexed value at sale of the house and then continues...


As (solicitor) has treated there as being one loan throughout it appears to me that there are two loan arrangements - one under the charge agreement and a second one under the loan agreement of September 2007.


Whichever way, we are agreed there is a gain in the loan between the date of the charge agreement and the sale of the house. Whether that gain is taxable would have been debatable at the time the agreement ended in September 2007. (Solicitor) has considered the increase a capital gain, but the Revenue might have contended it was interest and taxable to income tax. He goes on to explain a finance act of 2013 and then says


I think the argument is then that the increase is a capital receipt not an income receipt. This was not a commercial transaction. The Trustees are given wide powers as to whether they charge interest or not and chose not to. The object of the indexed uplift is not that the spouse should pay the commercial cost of borrowing but that the NRBDS should not incur a capital loss due to inflation whilst the loan is outstanding.


for capital gains tax purposes no chargeable gain or allowable loss arise on the repayment of a loan unless it is a "debt on security" as defined by the legislation, which this is not. I do not therefore see a capital gain arising on the settlement of the first charge by taking out the second loan. He goes on to justify it further before saying


I presume the thinking at the time of doing the deed of variation envisaged different plans going forward that have subsequently changed as the creation of the NRBDS has proved detrimental to Grandmothers position. The creation of the NRBDS crystallised the use of Grandfathers nil rate band in the year of the death. Given than all of his assets ultimately ended up in the hands of his spouse it would have been more beneficial to have transferred them to Grandmother on his death. Grandmother would then have been able to claim 100% of Grandfather's nil rate band at the rate prevailing at her death. This is to take advantage of hindsight, as the ability to transfer the nil rate band to a spouse was not available until 2007 and in 2004 the use of NRBDS in this way was a common practice. The appointment of the NRBDS debt to Grandmother wasted Grandfathers nil rate band. The NRBDS was used to take assets out of his and his Wife's estate and into the Settlement. Passing the debt back to Grandmother increased her estate at the time of death. The debt would have reduced Grandmother estate by the value of the loan which could have been settled out of her estate. The NRBDS could then have made appointments to (my Mother). We do not however have full information relating to Grandmothers estate at the date of death and there may be factors of which we are unaware which drove events in the way they have occurred.


Obviously when we received this letter in October 2014 we wrote to the solicitor to say we were shocked to read the accountant considered that my Grandfather's nil rate band had been 'wasted' as the creation of the nil rate band discretionary trust was explained to Grandmother and my Mother at the time as a way of minimising Inheritance Tax. Whilst we understood the law changed shortly after, the creation of the Trust was explained as being common practice at the time to secure Grandfather's nil rate band. We wrote that It now appeared the advice given by the solicitors caused Grandfather's nil rate band to be wasted in its entirety. We explained that for the time being we await a response from HMRC but if their response questions the availability of Grandfather's nil rate band then we will be discussing this with the solicitor further. The solicitors response was 'I note what you say in your final paragraph, and like you await the outcome with HMRC.'


That is what led me to ask HMRC what they would have needed to have been done in order for them to accept that everything did in fact pass from my Grandfather to my Grandmother and didn't go to anyone else in order for them to allow my Grandfathers nil rate band to be included on my Grandmothers Estate and their response was the 'Deed of Appointment'.

g6jns_2

becrrw wrote: »

Sorry I just realised I didn't answer your other questions.


My Mum as the only beneficiary/Trustee would have absolutely agreed to gift anything to her Mother if she needed it to buy her property. That's the only explanation I can think of for why that would have been necessary but I have absolutely no knowledge of what was explained/discussed regarding this at the time and my Mother has no recollection as it was a long time ago now.


With regards to the query about the accountants, I've just looked up the email which contains their letter and it is 8 pages long and made very little sense to me! I will try to filter for you but I apologise in advance as it's going to be quite long winded...


The provisions of the deed of variation dated December 2005 appear to have been given formal effect by the Executors of (Grandfather's) Will (as varied) in a charge dated 11 July 2006. Under this charge the Executors (Solicitor and my Mother) required the Trustees of the NRBDS to accept a debt in the sum of £x (I think this was the nil rate band allowance) instead of the pecuniary legacy being paid in cash.


He went on to explain that it was unlikely that the one half share in the house would have met the full value left to the NRBDS but says it's not a problem as clause 9(a) of the Deed of Variation provides that assets in the residuary estate can be charged with payment of a sum of money "equal or less than the amount of the trust Legacy".


Subsequent to the charge dated July 2006 it appears from the Solicitors email dated July 2014 that the house was sold in 2007 and Grandmother bought a flat. This dovetails with the loan deed of September 2007 which lends Grandmother the funds that should have been deposited in the NRBDS.


I assume that the fund never were deposited in the NRBDS, but that Grandmother sold the house and used the proceeds to buy the flat. The charge over the house held by the Trustees of the NRBDS will then have been replaced by the loan deed of September 2007. The Deed of Arrangement permits the Trustees of the NRBDS to accept any substitute debt for the original charge.


He goes on to explain the Indexed value at sale of the house and then continues...


As (solicitor) has treated there as being one loan throughout it appears to me that there are two loan arrangements - one under the charge agreement and a second one under the loan agreement of September 2007.


Whichever way, we are agreed there is a gain in the loan between the date of the charge agreement and the sale of the house. Whether that gain is taxable would have been debatable at the time the agreement ended in September 2007. (Solicitor) has considered the increase a capital gain, but the Revenue might have contended it was interest and taxable to income tax. He goes on to explain a finance act of 2013 and then says


I think the argument is then that the increase is a capital receipt not an income receipt. This was not a commercial transaction. The Trustees are given wide powers as to whether they charge interest or not and chose not to. The object of the indexed uplift is not that the spouse should pay the commercial cost of borrowing but that the NRBDS should not incur a capital loss due to inflation whilst the loan is outstanding.


for capital gains tax purposes no chargeable gain or allowable loss arise on the repayment of a loan unless it is a "debt on security" as defined by the legislation, which this is not. I do not therefore see a capital gain arising on the settlement of the first charge by taking out the second loan. He goes on to justify it further before saying


I presume the thinking at the time of doing the deed of variation envisaged different plans going forward that have subsequently changed as the creation of the NRBDS has proved detrimental to Grandmothers position. The creation of the NRBDS crystallised the use of Grandfathers nil rate band in the year of the death. Given than all of his assets ultimately ended up in the hands of his spouse it would have been more beneficial to have transferred them to Grandmother on his death. Grandmother would then have been able to claim 100% of Grandfather's nil rate band at the rate prevailing at her death. This is to take advantage of hindsight, as the ability to transfer the nil rate band to a spouse was not available until 2007 and in 2004 the use of NRBDS in this way was a common practice. The appointment of the NRBDS debt to Grandmother wasted Grandfathers nil rate band. The NRBDS was used to take assets out of his and his Wife's estate and into the Settlement. Passing the debt back to Grandmother increased her estate at the time of death. The debt would have reduced Grandmother estate by the value of the loan which could have been settled out of her estate. The NRBDS could then have made appointments to (my Mother). We do not however have full information relating to Grandmothers estate at the date of death and there may be factors of which we are unaware which drove events in the way they have occurred.


Obviously when we received this letter in October 2014 we wrote to the solicitor to say we were shocked to read the accountant considered that my Grandfather's nil rate band had been 'wasted' as the creation of the nil rate band discretionary trust was explained to Grandmother and my Mother at the time as a way of minimising Inheritance Tax. Whilst we understood the law changed shortly after, the creation of the Trust was explained as being common practice at the time to secure Grandfather's nil rate band. We wrote that It now appeared the advice given by the solicitors caused Grandfather's nil rate band to be wasted in its entirety. We explained that for the time being we await a response from HMRC but if their response questions the availability of Grandfather's nil rate band then we will be discussing this with the solicitor further. The solicitors response was 'I note what you say in your final paragraph, and like you await the outcome with HMRC.'


That is what led me to ask HMRC what they would have needed to have been done in order for them to accept that everything did in fact pass from my Grandfather to my Grandmother and didn't go to anyone else in order for them to allow my Grandfathers nil rate band to be included on my Grandmothers Estate and their response was the 'Deed of Appointment'.

It seems you need urgent professional advice from anther solicitor. It seems the existing one has messed things up and needs to compensate people for the costs.

becrrw

Sorry Savvy_sue I just realised I didn't actually respond to your question. I don't actually have a copy of that document it's something I will have a look for when I'm next over Mum's.

In the meantime the formal letter of complaint has been written so I will be back with an update when we get a response.

Thanks for everyone's advice and support to this point.