Changing IHT Trust to Life Interest Trust

seh567

Today I have been to see a STEPS solicitor. The advice I have been given is as follows:-

To dissolve the IHT Discretionary Trust by Deed of Appointment and set up a Life Interest Trust by Deed of Variation. With Conveyancing and LR fees costs would be £1850.00 plus vat.

I would own 50% value of the house and my sons would be trustees of the other 50%. The solicitor says that it is much easier to administer this type of trust and I would have more control of the interest. Any interest accrued in the trust would be for my use only as opposed to 3 trustees (including myself) in the discretionary trust. However I would not be able to use any of the capital regarding 50% in trust to my sons.

I can keep the IHT Discretionary Trust but I wont have as much control and it is harder to administer, ie tax returns, iou, etc Also the costs to ensure everything is set up correctly are much the same as cost to change to a Life Interest Trust.

Still not sure what to do but this solicitor explained it much better and there was no hard sell.

Any thoughts?

G6JNS

seh567 wrote: »

Today I have been to see a STEPS solicitor. The advice I have been given is as follows:-

To dissolve the IHT Discretionary Trust by Deed of Appointment and set up a Life Interest Trust by Deed of Variation. With Conveyancing and LR fees costs would be £1850.00 plus vat.

I would own 50% value of the house and my sons would be trustees of the other 50%. The solicitor says that it is much easier to administer this type of trust and I would have more control of the interest. Any interest accrued in the trust would be for my use only as opposed to 3 trustees (including myself) in the discretionary trust. However I would not be able to use any of the capital regarding 50% in trust to my sons.

I can keep the IHT Discretionary Trust but I wont have as much control and it is harder to administer, ie tax returns, iou, etc Also the costs to ensure everything is set up correctly are much the same as cost to change to a Life Interest Trust.

Still not sure what to do but this solicitor explained it much better and there was no hard sell.

Any thoughts?

You have been to an expert in trust law who has given you their professional opinion. I suggest you take their advice. Nobody on here has knowledge of all the details that you have given the expert so to try and advise is quite pointless.

SeniorSam

Seh567. I'm sorry for your recent loss.

Professional advice is always the best to have and provided you fully understand the benefits, or otherwise of changing from a Discretionary Trust to a Life Interest Trust, then you should act accordingly.

The Discretionary Trust was created by your husbands Will on his death and designed so that assets could be put into that Trust by the Executors. Otherwise by his wishes.

From previous posts, I understand that the overall property value is around £320,000, of which you each owned 50%. If all assets from your husbands Will were passed to you, then his nil rate band allowance, presently £325,000, will be available to your estate to offset any inheritance tax, which may not be chargeable unless there are other assets that would amount in total to the £650,000 allowance presently available.

The Trust that is presently in place is in the control of the Trustees, of which you may be one and family members the others. If so, then you have retained some control of whatever is in the Trust and there is no easier control of the Discretionary Trust compared with the Life Interest Trust. I cannot see that there would be any interest from capital to use in the Trust unless the idea is to gift capital into the Trust as well as property. In that case, it is a question of what interest is gained, or if the capital were in a Groth investment, then there would be no income and no tax returns.

However, all Trustees need to agree on any action that is taken regarding distribution of income or the assets in the future, but the Discretionary Trust has protected whatever has been put into it for future beneficiaries. If you feel comfortable that the other Trustees would agree with you in the future, then the same control is maintained in the Discretionary Trust.

If your late husbands half of the house was the only asset allocated to the Discretionary Trust, then it is protected and 'sheltered' so that it will pass to your children eventually and could not be attacked should you need to go into care at a later date.

Although the costs quoted by the solicitors do not seem excessive for professional help, what has the solicitor stated as the benefits to you of disolving the Discretionary Trust that was originally set up by solicitors in your Wills.

I would need to understand more of what is proposed to be put into the Trust before adding further to this.

Sam

seh567

Yes it is only the 50% share going into the trust and yes only myself and my 2 sons are trustees.

I am beginning to think it might have been better to have everything left to me and taken my chances with regards to protecting assets if I should go into care in the future.

I am really stressed and anxious to how this is all going to pan out so I am thinking that I should do nothing at this moment in time as I believe I have up to 2 years from date of death to come to any decision if I want to change things.

I thought I had done the right thing by getting solicitors advice including one which was STEPS regulated but I am beginning to think they are trying to get monies out of me for the sake of it. I am now considering doing nothing and see how it pans out. Both solicitors have advised that I relinquish my trusteeship which concerns me because it goes against my husbands wishes and I believe that I am more financially savvy than my 2 sons god bless them.

My concern is that if I do nothing there could be complications if I try and sell the property to downsize in the future. As I understand it I cannot sell if the Land Registry deeds are showing the my late husband and I are joint owners as tenants in common which it is at the moment. Also how does it work in priciple with HMRC. If there is no interest made in the trust how does it work. Do I need to inform them and do each of the trustees have to fill in a tax return every year?

I trust my sons implicitly and they are happy to go along with whatever I decide. It would appear that none of us are clever or knowlegeable enoughto get a grip tof this.

getmore4less

The legal owners of the husbands 1/2 should be the trustees.

I can't remember if you have a life interest or not.

SeniorSam

You should definately retain your Trusteeship of the Discretionary Trust that was set up by your husbands Will.

With half the value of the house in the Discretionary Trust, I can see no logical reason for changing this to a Life Interest Trust. There are no capital assets, no tax returns to do and not even a reason to change any registration of the property at this time. That could be done when and if you move house later on.

With the Discretyionary Trust, should you decide to move house, then you and your sons, as Trustees agree to this and that is not at all difficult. At that time, the Trustees, (the 3 of you) could allow the value of the property in Trust to be in your name, but with an I.O.U. assigned to the Discretionary Trust and repayable from your estate when you die.

Sounds to me as though someone is suggesting change for the sake of it, or could it be for fees?

Sam

seh567

Thank you Sam.

So if I keep the Discretionary Trust as it is with myself and my 2 sons as trustees I do not need to inform HMRC or Land Registry at this moment in time.

I do not intend to move in the near future but you never know if my circumstances change.

SeniorSam

That is correct and you maintain control as all Trustees agree on what happens with any Trust asset. The property can be re-registered at a later date and until the time, when it may be disposed of, the changes are not so important.

The fact that you trust your sons completly means that you can relax and stop worrying...................... the first solicitor got it right.

Sam