Help - Nil Rate Discretionary Trust

sparklestars_2

Please help - I don't know what to do! My Father died nearly 5 years ago and left a nil-rate Discretionary Trust with my Mother and I as Trustees. My parents have 'mirror wills' and had become 'tenants in common' for this purpose. There was a large sum of money (in addition to his half of the marital home) in the Trust. We found it impossible to find a bank or building society that would set up a Trust Account (which we believed was what was needed). Therefore, we both agreed to leave the money in an account that just has my Mother's name on - as it seemed simpler to do so and (at the time) I had no reason to distrust my Mother as she is....my Mother! She took/borrowed some money from the account, which we both agreed to, which she was going to pay back into it at a later date as it was only a 'loan' but we put nothing on paper - as I trusted her.


However, without going into details - she has become very nasty and hostile (I suspect mental capacity will become an issue in the near future) and a neighbour has become very 'overfriendly' with her and I suspect he is influencing her. I do have an Enduring Power of Attorney document, but it is not yet in use or registered - as I don't think she would 'quite' be considered to lack capacity for her money at the moment....and if she did, I suspect she would object to me managing it as she has become very suspicious and paranoid.


My concern is, how do I now ensure that she does not take my Father's money (from the Discretionary Trust as the account in which it's stored is in her sole name) and make a new will leaving everything to 'someone else'. How can I prove the money in that account is not 'hers'? I do have a paper/electronic trail of the fact that it went straight from the Solicitor's Client Account (following the death of my Father) and has remained in the current account since. The money she has had out of it has gone (electronically) straight into her own bank account.


Please help me get some ideas on what I can do and how to do it please?


Many thanks.

securityguy

I suspect that over the next twenty years, the various "rather more complex and risky than the salesman said" schemes for "protecting" money against care costs and inheritance tax are going to be another mis-selling scandal. The peak for taking such policies out has probably passed, because of the increase in the IHT threshold and a greater awareness that "oh, the council will pay" is not as easy as it appears, plus councils are getting a lot more stroppy with deprivation of assets actions. But there's going to be a long tail of people sorting the messes out.

OP, to recover the trust's money you are probably going to need a court, and the situation will be extremely messy as she is a trustee and if she has "joint and several" powers then showing the money has been mis-used will be difficult, and if the trust is "joint" (and one would have to question the wisdom of a joint trust with two trustees one of whom is an elderly parent) then you are going to have to have a show-down over mis-use of trust powers. Your hands will not be clean, because putting the property of a discretionary trust into an account in the name of one of the trustees under their sole control would be seen as a breach of fiduciary duty, on your part at the point at which you agreed to it, to the trust anyway.

The whole point about the tax-avoiding power of discretionary trusts is that they have to be discretionary: if they are written to strictly specify the beneficiaries and their entitlements, they cease to be discretionary and are revealed as the shams that they would in fact be (because were they not discretionary they would be dissoluble as per Saunders v Vautier and therefore would not be separate from the beneficiaries). You now have a situation where your mother as individual, your mother as trustee, your mother as holder of the account containing the trust's assets, you as individual, you as trustee, you as your mother's attorney and (in so far as it has a legal existence distinct from its trustees) the trust itself all have conflicting objectives and powers, which are going to be messy and expensive to resolve.

The chances of recovering any money that has already been spent are zero, of course, unless you want to sue your mother for it personally which would, apart from anything else, immediately invalidate your power of attorney. And all the legal fees for this are going to come from the trust, in various ways, or from your personally.

What a mess. Not something that the "just set up this will and you'll save loads of money!" man told your parents, I suspect.

sparklestars_2

Thanks Securityguy for taking the time to read and respond. You are right - it has been a total nightmare from start to finish. It was so complicated when my Dad died (various assets in various shares/trusts etc) we had to use a large, expensive Solicitor's firm which had to consolidate the assets for us as I was grief stricken and barely functioned, my Mother just washed her hands of it and left it all up to me.


It was a nightmare that then proved impossible to get any bank or financial institution to open the necessary 'trust account' that was supposed to be 'so easy' to do. Even when we may have found one - we actually needed about 5 due to the amount of money and the limit of financial protection - when we struggled to even find one how could we find 5???


I don't have an 'active' power of attorney as yet - the EPA was written into their mirror will document. I imagine she will appoint someone else to do it if it comes to that (and if they accept she still has capacity - which I doubt, I suspect she has dementia).


Okay - so to protect the money that remains (which is still a large sum thankfully) I need to take her to Court in order to at least have it put in both our names....? Although, the best I will be able to do I suspect is a joint account - as there STILL isn't sufficient provision to allow the 4 accounts I think we would now need!


As you say - "what a mess" - you are so right and yes, my poor old Dad just set this up as he was led to believe it was the 'easiest' option to allow things to run as smoothly and as uncomplicated as possible for me and my Mother. Who would believe your own Mom could do this to you. My poor Dad, I cry just thinking about how he would feel about this.

securityguy

sparklestars wrote: »

It was a nightmare that then proved impossible to get any bank or financial institution to open the necessary 'trust account' that was supposed to be 'so easy' to do. Even when we may have found one - we actually needed about 5 due to the amount of money and the limit of financial protection - when we struggled to even find one how could we find 5???

That would imply that the total value is £375k: five times the deposit protection limit of £75k. What on earth was the justification for this complex set-up? The amount of inheritance tax payable would have been zero at the time (transfers between spouses have always been free of inheritance tax in its modern forms) and it doesn't sound as though there would have been much payable on the death of your mother either, even assuming none of the money was spent.

I don't have an 'active' power of attorney as yet - the EPA was written into their mirror will document.

That sounds odd. Enduring Powers of Attorney are different to modern Lasting Powers of Attorney, but still had standard forms and terms. When you say "written into (the) document" what does that mean?

I imagine she will appoint someone else to do it if it comes to that

I think you need to investigate what is actually in place. EPAs name specific attorneys: the whole point is that if the donor loses capacity, the attorneys act for the donor. The choice of attorneys is made at the point at which the EPA is drawn up and signed. Your mother can of course rescind it at any point, subject to having capacity.

(and if they accept she still has capacity - which I doubt, I suspect she has dementia).

This has been discussed before on this forum. A diagnosis of dementia does not mean that someone lacks capacity (and, of course, vice versa: the absence of that diagnosis does not prove capacity). The threshold for loss of capacity is quite high (or low, depending on how you look at it) and people with quite marked signs of dementia, particularly if it is mostly affecting memory rather than cognition, will be deemed of testamentary capacity.

Okay - so to protect the money that remains (which is still a large sum thankfully) I need to take her to Court in order to at least have it put in both our names....? Although, the best I will be able to do I suspect is a joint account - as there STILL isn't sufficient provision to allow the 4 accounts I think we would now need!

You might, in the present circumstances, regard the risk of a major high-street bank going bankrupt and losing all your savings (aka "the end of the British economy") as being rather smaller, and less worrying, than the risk of your mother giving all the money to her neighbours. But it sounds like what you actually need to do is appoint some more trustees.

As you say - "what a mess" - you are so right and yes, my poor old Dad just set this up as he was led to believe it was the 'easiest' option to allow things to run as smoothly and as uncomplicated as possible for me and my Mother.

That's just crazy. Why was any of this needed? Transfers to your mother were free of IHT and as of today there would be no IHT payable on the sums you imply unless there is also a large house. And anyway, it sounds like you have already spent more on the complexity of the situation than any IHT saving anyway.

Who would believe your own Mom could do this to you. My poor Dad, I cry just thinking about how he would feel about this.

She may not be well. And the whole thing sounds fundamentally mis-conceived, with insufficient trustees, no clear investment route and no clear objectives for the trust. Do you know what your father thought the advantage of this complex set up was? Perhaps he was hoping to protect "your" inheritance against your mother spending it all, in which case it has certainly failed.

sparklestars_2

Thanks for taking the time to read through the reply securityman - it's much appreciated.


Sorry - it might have been 4 I was looking for then - the amount was £250k cash (Mother has about the same in her name as they split the assets for making the mirror Wills) plus his half share of two properties outside of the cash amounts so total value of estate (including Mother's part would have been about £850,000.00 in total including properties, cash etc. I think my Dad's entitlement to inheritance tax relief was 'transferred' over to my Mother so that when she dies the estate will be assessed against 2 x people's IHT allowance at whatever the rate is when she dies. The thing is, he died in 2007 and had set up the Will etc a good few years before he died. Maybe it made the best sense at that time when I think the threshold for inheritance tax was lower?


Re the EPA - I remember seeing the EPA document (ie written out and completed) included in the document for the Will with myself named as Attorney. However, it has not been 'registered' as yet in the fact that she has not been assessed to lack the mental capacity to manage her finances. I am positive that I am the named Attorney in the EPA - but what I suspect is that the neighbour may try and get her to 'rescind' that before it is activated (ie before she's formally assessed to lack capacity) and get her to make out a new one....and probably a new Will whilst she's at it.


She doesn't have a diagnosis of anything formally as yet and yes, I do understand your point re capacity - but I do believe both her cognition (thinking, reasoning and decision making skills) and her memory are affecting her decision making. I have alerted the GP of my concerns and I think he is arranging to see her this week. Unfortunately, she is 'fluctuating' with this and the problem is if they see her on a 'good' day they will not realise what a 'bad' day is like. She is extremely open to influence and has become quite nasty towards me - she is forgetting or twisting things that have happened and imagining things that haven't happened....I strongly suspect the neighbour is whispering things in her ear but it's impossible to prove ugh.


We don't really have anyone else that could act as a Trustee - I'm an only child as is my Mother, I also a single parent with a young child of my own, I work and this is all just killing me right now....it's so complicated. We have no other family at all and no friends that I would trust to do this (after all, if you can't trust your own Mother!). I think my Dad's aim was (at the time) to save on IHT and also to ensure that both my Mother and I were 'looked after' - so that she had enough to live on in her lifetime but also so that any money left would then come to me on her death.


As you say, it looks like that has all been an awful waste of his time, money and effort. The cost of the Solicitor just to administrate all of his affairs after his death was £10k without any of the rest of this nightmare.


I am trying yet again to find a 'proper' Trustee account to get this money put into....if it's still possible....but I don't know what I'm going to do if a) My Mother refuses (which seems quite possible) as I'm not sure how to 'make' her transfer it to a 'proper' account if I can even get one or b) is assessed to lack the capacity to manage her finances before then!!


As things stand I would become the nominated EPA if she hasn't made another one - but I guess I still couldn't transfer the money into a Trustee Account as wouldn't that be a potential 'conflict of interest' with my EPA role.


*Edit to add - this crisis came to a head just before Christmas....she phoned the Police saying she didn't know where my daughter and I were and we 'must' have had an accident. The WPC scrolled through her phone and saw the text (Mother had replied to) that told her where we were going and how long for, I'd texted her whilst we were away too and she'd replied. She accused me of "!!!!!!ing off" and leaving her alone over Christmas previously, which I have never done - and also refused to believe she'd spent Christmas Day with us last year - even though I had the photos to prove it!! She also said a lot of other really nasty things to me and made all sorts of accusations and that's just the tip of the iceberg.

getmore4less

The nil rate band trust has probably used up the nil rate band so no transferable nil rate band to use.

you have said he died 5 years ago and 2007 which is it?

securityguy

sparklestars wrote: »

Thanks for taking the time to read through the reply securityman - it's much appreciated.


Sorry - it might have been 4 I was looking for then - the amount was £250k cash (Mother has about the same in her name as they split the assets for making the mirror Wills) plus his half share of two properties outside of the cash amounts so total value of estate (including Mother's part would have been about £850,000.00 in total including properties, cash etc. I think my Dad's entitlement to inheritance tax relief was 'transferred' over to my Mother so that when she dies the estate will be assessed against 2 x people's IHT allowance at whatever the rate is when she dies. The thing is, he died in 2007 and had set up the Will etc a good few years before he died. Maybe it made the best sense at that time when I think the threshold for inheritance tax was lower?

Yes, it might have made sense then, when nil rate bands didn't transfer. However, there was never any risk of paying IHT on the first death, because the exemption for spouses was always the case, so this was only about avoiding IHT on the second death. It would have made more sense to set things up so some of the money went absolutely to you on the first death, using his IHT allowance. But anyway, it's in the past and can't be changed.

Re the EPA - I remember seeing the EPA document (ie written out and completed) included in the document for the Will with myself named as Attorney. However, it has not been 'registered' as yet in the fact that she has not been assessed to lack the mental capacity to manage her finances.

That's not how it works with EPAs, and they don't necessarily need to be registered in order to be used. You might like to get legal advice over that. However, and again you would need legal advice to confirm, since about 2000 you have not been able to act as a trustee via a power of attorney, so her capacity to act as a trustee ceases with her loss of capacity.

The messy part is that whether you could use a power of attorney to move money from her sole-name account back into a discretionary trust for which she and you are trustees is a very difficult question indeed. Cynically, you could argue that the only person in a position to complain about it is you, so if you did it then no-one is going to come after you. But that assumes she hasn't in the meantime drawn up another will, which would definitely make such a transaction someone else's affair., to whit the executors of her new will. What a mess.

I am positive that I am the named Attorney in the EPA - but what I suspect is that the neighbour may try and get her to 'rescind' that before it is activated (ie before she's formally assessed to lack capacity) and get her to make out a new one....and probably a new Will whilst she's at it.

As next of kin you could object to a new power of attorney, although it's not clear how effective that objection would be. That's all a matter for the court of protection, I'm afraid. ETA: Someone cannot act as a trustee via a power of attorney (but check this with a lawyer) so if your mother loses capacity, you are the sole trustee of the trust, whoever is her attorney. But a situation in which you are a trustee without control of the assets and someone else is an attorney in control of what are on the face of it your mother's sole-name assets but are in fact assets, improperly taken, of a trust is a recipe for a very messy court case.

We don't really have anyone else that could act as a Trustee - I'm an only child as is my Mother, I also a single parent with a young child of my own

The sensible thing would have been to appoint, and pay, a solicitor to do it, given it was going to be done at all. Other posters say, with some justification, that if you can find good trustees then there is nothing wrong with trusts, but as you are finding out, good trustees one year may prove to be bad trustees another. It does sound (with due respect) that neither of you really had the time or knowledge to be effective trustees and therefore a situation developed - that of the money being under the sole control of one of the trustees - that was dangerous if one of the trustees became difficult.

I work and this is all just killing me right now....it's so complicated. We have no other family at all and no friends that I would trust to do this (after all, if you can't trust your own Mother!).

Appoint a solicitor. Pay them. It'll be cheaper than what will happen otherwise.

I think my Dad's aim was (at the time) to save on IHT and also to ensure that both my Mother and I were 'looked after' - so that she had enough to live on in her lifetime but also so that any money left would then come to me on her death.

A laudable aim, but the structure he set up was weak: not enough trustees, none of them independent, no mechanism for dealing with incapacity. You and your mother then with the best of intentions allowed the situation to get worse by giving her sole control of the money, which basically made the trust ineffective (why didn't you at least open a two-signature joint account?)

I'm afraid you need legal advice, and it isn't going to be cheap. Do you have access to any of the funds of the trust? If you don't, and can't afford a solicitor, then you are in a very difficult position, as the police aren't going to be interested (after all, you agreed to move the money into her sole name).

As you say, it looks like that has all been an awful waste of his time, money and effort. The cost of the Solicitor just to administrate all of his affairs after his death was £10k without any of the rest of this nightmare.

Indeed. A salutary lesson, I think, for others considering similar structures.

I am trying yet again to find a 'proper' Trustee account to get this money put into....if it's still possible....but I don't know what I'm going to do if a) My Mother refuses (which seems quite possible) as I'm not sure how to 'make' her transfer it to a 'proper' account if I can even get one or b) is assessed to lack the capacity to manage her finances before then!!

Any two-signature bank account would do, surely?

As things stand I would become the nominated EPA if she hasn't made another one - but I guess I still couldn't transfer the money into a Trustee Account as wouldn't that be a potential 'conflict of interest' with my EPA role.

You would need good legal advice.

getmore4less

As next of kin you could object to a new power of attorney, although it's not clear how effective that objection would be. That's all a matter for the court of protection, I'm afraid

LPA

You may never know if one has been set up, there is no requirement to inform anyone.

All it needs are attorney, certificate provider and the donor
The certificate provider can be the witness.

securityguy

"You may never know if one has been set up, there is no requirement to inform anyone."

There isn't, but you can I think apply to the court of protection to register a standing objection to the appointment of an attorney. You would need a form COP1 and £400, plus a good lawyer and their fees.

SevenOfNine

You are correct OP, we have recently discovered it has become impossible to open a trustee account, though I thought this was a more recent problem. We are waiting on an answer from Metro Bank, & have tried Lloyds, Halifax, Nationwide & Santander without success (though we have accounts with 3 of them, so already customers - made no difference). Someone also said HSBC may still offer them but I'm not holding my breath.

As opposed to asking advice from strangers on a forum, who may not have the correct level of knowledge, about the best way out of this mess I think it would be extremely wise to consult a solicitor.

As trustee you did not administer the trust correctly, what have you been doing about tax? Presumably you did not notify HMRC of the trust set up & complete appropriate annual tax returns (assuming the 'trust' asset was not merely stagnant or depreciating).

That aside, if only you & surviving spouse were trustees & beneficiaries (not uncommon, ours is like that, presume you were over 18), at the very least you should have had a joint account with both to sign.

Too late now, without following any proper course of action & no supporting paperwork it does rather 'look' like you may, as trustees, used your discretion (the point of a discretionary trust), and agreed to wrap up the trust & distribute the assets to only 1 of the beneficiaries.......your mum!

There may be no way to recover this situation, your mum has the money, the trust has not been properly administered, it doesn't seem as if anything was in writing & you need legal advice. You may also have the tax man to appease.

Sorry.

sparklestars_2

Sorry you're right - my Dad died 2012 (my daughter was born 2007 - got them mixed up!).


Securityguy and Getmore4less - thank you both so much for reading through all of what is such a convoluted situation....and appears to be getting worse by the minute.


Yes - you are right, neither of us had the time, ability or knowledge to be Trustees and the way the whole process was explained to us made it sound far, far simpler than it ever was.


That's true re the LPA - hadn't thought of the fact they wouldn't necessarily notify me....and I could only lodge an objection if I got to hear about it couldn't I?!


Okay - so the conclusion is, it is the utter nightmare I thought it might be and there is no simple solution. The only answer appears to be a Solicitor and great expense (I imagine). No, I don't have access to that kind of money.


I guess I have to hope my Mother still retains enough reason and capacity to agree to the money being transferred into a 'proper' account. In the meantime, I am trying to register for an account at the same bank the money is in - so that we can at least register for a normal 'joint' account (as you have suggested) quickly and hopefully transfer it from there to a 'proper' Trustee account. That's if Mother Dearest will do that willingly.


I wish my Dad had just spent all his money - he lived such a frugal life to accumulate it, you have no idea. Now it's likely to all end up lining the pockets of some twisted fraudster who has just preyed on Mother's love of attention and vulnerability.


Thank you for your time and attempts to help anyway, it's very kind of you.