Discretionary Trust and IHT forms - help needed please!

MrsTigger

My Mum died intestate in 2006. Her estate of £177K was made up of savings and investments and through a Deed of Variation, legacies totalling £100K were left to myself and my daughters, the remaining £77K being put into a Discretionary Trust with myself and my Father as trustees. I’m aware that subsequent changes mean that the formation of the Trust may have been unnecessary. But this is where I am.

My Father died in November and I am now attempting to complete the relevant forms to apply for probate. I realise I’m going to have to use the services of a solicitor at some point, but I am trying to get as far as I can myself before I do.

Only since my Father’s death have I seen his correspondence with the solicitor who put together my Mum’s Deed of Variation and a ‘Loan Note’ which substitutes actual assets in the Trust with a promise from my Father to repay the money to the Trust in the future, secured against his property. (I now realise that as a signatory to these documents I should have been more aware of what was being set up; I wasn’t and am now struggling to work out what it all means). The solicitor’s letter says we could discuss linking the amount repayable to the RPI and also recommends an annual review to confirm that the purpose of the Trust was still applicable. However, these discussions and reviews never took place.

The value of my Father’s property is £355K and the total estate is just over £500K – but this includes the £77K Trust. His will appoints my husband and I as executors and trustees. It leaves legacies to my daughters and the remainder to the Trustees to hold on trust for myself.

My query is how to enter details of the trust and onto which IHT forms. My thinking is that my Father has a debt of £77K owed to the trust – does this go under other liabilities, box 82 on IHT400? Or do I have to complete IHT418 – but this seems to require me to details the assets in the trust, which is not, as far as I’m aware, registered with HMRC. Alternatively, is it a loan that goes on IHT419?

Any guidance would be much appreciated.

Yorkshireman99

MrsTigger wrote: »

My Mum died intestate in 2006. Her estate of £177K was made up of savings and investments and through a Deed of Variation, legacies totalling £100K were left to myself and my daughters, the remaining £77K being put into a Discretionary Trust with myself and my Father as trustees. I’m aware that subsequent changes mean that the formation of the Trust may have been unnecessary. But this is where I am.

My Father died in November and I am now attempting to complete the relevant forms to apply for probate. I realise I’m going to have to use the services of a solicitor at some point, but I am trying to get as far as I can myself before I do.

Only since my Father’s death have I seen his correspondence with the solicitor who put together my Mum’s Deed of Variation and a ‘Loan Note’ which substitutes actual assets in the Trust with a promise from my Father to repay the money to the Trust in the future, secured against his property. (I now realise that as a signatory to these documents I should have been more aware of what was being set up; I wasn’t and am now struggling to work out what it all means). The solicitor’s letter says we could discuss linking the amount repayable to the RPI and also recommends an annual review to confirm that the purpose of the Trust was still applicable. However, these discussions and reviews never took place.

The value of my Father’s property is £355K and the total estate is just over £500K – but this includes the £77K Trust. His will appoints my husband and I as executors and trustees. It leaves legacies to my daughters and the remainder to the Trustees to hold on trust for myself.

My query is how to enter details of the trust and onto which IHT forms. My thinking is that my Father has a debt of £77K owed to the trust – does this go under other liabilities, box 82 on IHT400? Or do I have to complete IHT418 – but this seems to require me to details the assets in the trust, which is not, as far as I’m aware, registered with HMRC. Alternatively, is it a loan that goes on IHT419?

Any guidance would be much appreciated.

You need to consult a solicitor who is a STEP member. Not an DIY job for a novice.

Keep_pedalling

Yorkshireman99 wrote: »

You need to consult a solicitor who is a STEP member. Not an DIY job for a novice.

Agreed, I would also look at the reasoning your legacy is being left in trust rather than an absolute gift. There may have been a good reason when written, but I can’t think of one now, so another DoV might be in order.

Tom99

Agree with above. It probably depends exactly how your mother's trust was set up, was your father a named beneficiary of this trust or can you look at it as a separate transaction ie your father borrows assets from the trust (house?) on loan with a promise to repay this loan at a future date.
You could try employing the STEP solicitor just to advise on the form completion rather than any wider role.
I think your father inherits your mother's RNRB since she could not have used it, plus her unused NRB from 2006, so you should have somewhere in the region of £650k+ IHT free.

getmore4less

As there was no transferable nil rate band in 2006 it was common to use it up passing at much as possible away from the spouse(not increasing their estate) by use of nil rate band trusts or other people.

Then the spouse borrows the money from the trust leaving a debt against their estate rather than getting money from the trust as a beneficiary.

NRB 2006 was £275k/£285k (changes April)

£177k used

Available to transfer
98/275 35.6% £115,818
108/285 37.9% £123,158

Then 2 RNRB of £125k each as there is a house

The point of the trust set up by mum is to not have that as part of dads estate but as a debt reducing that estate.

Who are the trustees and beneficiary of mums trust?

dads estate is the house + the rest, if you included £77k in the £500k when it should have been taken off you are looking at £346k

If it was after it had already been taken off then £500k is well within the available nil rate band of £690k/£698k

A solicitor should be able to clear this up for you and explain how these things worked at the time and what needs doing now to tidy up both the trust and dads estate

getting as much info before you go is worth while it will reduce the time needed with the solicitor

Have a read up on nil rate band trusts

A couple of things.
is there enough cash in dads estate to pay the legacies to your kids and the debt to the trust?
If not that may impact what happens to the house

Who will be benefiting from mums trust no the trust has its assets back and is probably no longer needed?

It reads that you are an only child and that everything will be heading your way and to your kids, time to consider your own IHT and succession planning

MrsTigger

Thank you all for your replies, which have confirmed for me that I can't go any further with this on my own. There only appears to be one firm with STEP solicitors in my small town, so I guess that's my 'shopping around' done for me!

I hadn't thought about the possibility of another DoV, but that may well be a possibility. I know my Father had thought that he'd done the right thing and left everything to be easy for me to sort out - he'd be horrified to know it could be costly to untangle. I don't believe there's going to be any IHT to pay - it's just the matter of sorting the documentation correctly.

To answer some of the questions raised in your responses:

The Beneficiaries of Mum's Trust are defined as my Father, myself and her remoter descendants. My Father and I are named as the Trustees.

There is enough cash to pay the legacies and debt to the trust, however I have already decided that the house will be sold and have started taking steps to put it on the market. (My understanding is that I can do this, but cannot complete until probate has been granted).

Yes, I am an only child. My thinking is to pass Mum's trust directly to my daughters and I've certainly come to realise the importance of sorting out my own succession planning - and making sure that everyone involved understands what's put in place and why.

If I may, a couple of queries relating to the RNRB has come to mind having done some further reading today:

I believe the house was probably always owned in my Father's name only - I need to check this - but on my Mum's IHT205, zero is shown against the value of the residence of the person who died. If this is the case, does this mean only one lot of RNRB would apply?

Secondly, given that my Father's will states that it 'gives his estate not otherwise disposed of to the Trustees on trust ... to hold the remainder on trust for' [myself]. Does this mean that, in fact, the property hasn't been left directly to me and so the RNRB doesn't apply at all?

Thank you again for your help.

getmore4less

The last bit is standard will speak, the executor(s) act as trustees for the duration of administration the named beneficiaries inherit.

This is fairly standard stuff and if you do the legwork should not cost a lot to get solicitors to help or even do the job.

Preparing the house sale is fine, get everything in place and you can decide when to go active once you have an idea of timescales.

A bit of planning will make things clear on what to keep and what to pass down.

Tom99

MrsTigger wrote: »

I believe the house was probably always owned in my Father's name only - I need to check this - but on my Mum's IHT205, zero is shown against the value of the residence of the person who died. If this is the case, does this mean only one lot of RNRB would apply?.

[FONT=Verdana, sans-serif]The RNRB did not exist in 2006, therefore your mother cannot have used it, therefore your father inherits it. It does not matter what estate your mother left nor who it was left to. [/FONT]

MrsTigger

Just wanted to express my thanks again to those who replied to this query. I booked an hour with a STEP solicitor who reviewed the forms I'd completed and told me how to enter the details of the Trust onto the relevant forms (IHT 419 was required). This took about half an hour (and he actually only charged me for 20 minutes of his time). Probate was granted within 3 weeks of submitting the forms. We are now working with the same solicitor on our own wills and what to do with the Trust going forward. Reading this forum gave me the confidence to tackle the admministration of my Dad's estate on my own in the first place, for which I'd like to thank you all.