Trying to avoid a probate IHT mess...

ratechaser

Hi all

It's my first time as an executor, and first time posting on this part of the board. Lots of detail that I could go into but I'll spare you unless there are any specific questions you need answered. Key points are

- Only asset in the estate for the deceased "A" being administered is a property, worth probably £125k-ish.
- Will directions are that it goes entirely to "B",  with the implied but not explicit intent that it is for the ultimate benefit of "A"s juvenile children (actually, one is already 18).
- "B" is the grandparent of the children and a joint executor
- Nothing formal in the will to say that the property has to be held in trust in any way, however "B"s stated intention is that once the youngest child is 18, there will be a transfer to them as joint owners.

To me, this is an unholy mess. B is of a pretty advanced age, has assets that would already put their estate above the IHT threshold even before they took ownership of this additional property; and it's still several years before A's youngest child turns 18. IHT, the 7 year rule, CGT... I can think of a number of reasons why it's a bad idea for B to take ownership of the property, even if that's the strict terms of the will. 

There's no argument from B that they want A's children to benefit to the maximum extent possible, so what are the alternatives - some form of trust structure to hold the property in? It's further complicated that the property needs some considerable work doing to make it comfortable to live in - and with no cash in the estate, someone (probably B ) will have to pay for this, but could reasonably want that offset against the value of the property being handed on to the children...

Would appreciate any advice - everyone seems to want to do the right thing, but the wording versus the intent of the will are not joined up. It would be very easy for me to just discharge my responsibility through letting B take ownership of the property, but it's the children that will ultimately be disadvantaged if I do so. And I think B realises it, but it needs a hard discussion with options laid out...

thanks
RC

xylophone

With B's consent, the will could be varied such that the property or its sale proceeds were  left to B's grandchildren.

https://www.gov.uk/alter-a-will-after-a-death

if the will were varied to leave the property to the children, it would need to be held in  bare trust until the youngest  reached his majority.

However, this option would mean that since each child would have both a beneficial (and ultimately legal) share in a property,  any first time buyer benefits would be lost.

It seems to me that it would be easier all round if the will were varied to direct that the property should be sold and its sale proceeds shared equally between the three children.

The one who has reached his majority could receive his share immediately while the balance would be held in bare trust for each of the minor children until they reached their majority.

It would also be possible to have the sale proceeds directed to a discretionary trust for the benefit of any or all of the children but this would involve more of an administrative burden than B (and/or you) might wish to contemplate.

https://www.gov.uk/trusts-taxes/types-of-trust

ratechaser

Thanks. At the risk of drip feeding, B is vehemently against selling (sees bricks and mortar as the perfect long term investment). And equally against the adult child getting direct control at this point due to very poor money management skills (and on this point we are agreed). Punting it down the road for a few years until the youngest is 18 at least gives a chance for a bit of financial education to take place. Although even there I'm sceptical it will do a lot of good.

Believe me, if it were up to me, the property would be sold in an instant, it's a wreck in a nasty location... but unless I'm prepared to create some potentially quite big family ructions, I'm resigned to that not happening. I hadn't considered the FTB impact though, so that's another argument I could use...

getmore4less

What does the will say?

You may be thinking there are implied terms but they may in fact explicit because you don't understand them

the will creates a trust for any minor beneficiary.

The actual wording is critical to be able to answer beyond that.

ratechaser

It's written that the property goes to B, referencing a formal role that B already has as guardian for the children (that's a whole separate issue). There is absolutely nothing that requires or implies the need for a trust. It's a one liner in an extremely basic pro-forma will that I was not aware of until a week ago (or that I was a named executor). It was drawn up between A and B (and is correctly witnessed) with the intent that the estate should ultimately benefit the children rather than B directly. On that point we are all agreed and B wants to do the right thing as much as I do. But it's not very well written, and so it now comes down to how we best manage this to achieve the desired outcome of the deceased.

And so I'm trying to lay out the best options here so that it doesn't turn into an argument...

xylophone

 it's a wreck in a nasty location...

Then why does B think that spending money on it would pay dividends?

As I said above, it would be possible to vary the will to direct that the property is held in discretionary trust for the benefit of any or all of the children, but be aware of the administrative/tax burden this can create.

If such a Trust were created and B spent money on the property, this in itself could create  a gift into Trust and could have its own admin/tax implications.

If B is determined that the property must be kept, then leave matters as they are, the property becomes his, he spends his own money on it and disposes of it as he wishes in the future, whether while he is living (consider CGT) or by will (consider IHT)? 

xylophone

 It's a one liner in an extremely basic pro-forma will 

Saying what exactly?

 On the lines of "I leave my house situate at 123 Anytown Road  Anycounty to my father John Smith absolutely but in the hope/expectation that he will use it  as he sees fit to benefit my children Mary Smith, Peter Smith and Richard Smith?

ratechaser

xylophone said:

 it's a wreck in a nasty location...

Then why does B think that spending money on it would pay dividends?

As I said above, it would be possible to vary the will to direct that the property is held in discretionary trust for the benefit of any or all of the children, but be aware of the administrative/tax burden this can create.

If such a Trust were created and B spent money on the property, this in itself could create  a gift into Trust and could have its own admin/tax implications.

If B is determined that the property must be kept, then leave matters as they are, the property becomes his, he spends his own money on it and disposes of it as he wishes in the future, whether while he is living (consider CGT) or by will (consider IHT)? 

Sigh, I suspect you might be right on that last part. Don't see me winning the argument to sell, I'm struggling to even win the argument to focus any investment where it could actually add some value.

It's annoying because I know that B does want to do the right thing, but really isn't going about it the right way. At least that's my opinion, who knows, perhaps the house could be in the next big up and coming location (it's not, it's really really not, it's far more likely to feature in a Benefits Britain type program)

poppystar

Is renouncing your executorship a possibility you would consider, especially if it wasn’t something you had agreed to? B could then do as he wished and felt was best even if not what you would suggest. I realise you may be family and not want to do this, just put it out there in case.

ratechaser

poppystar said:

Is renouncing your executorship a possibility you would consider, especially if it wasn’t something you had agreed to? B could then do as he wished and felt was best even if not what you would suggest. I realise you may be family and not want to do this, just put it out there in case.

Yes, the thought has crossed my mind, but as you have already indicated, it's a bit of a nuclear option, especially when nerves are already frayed... and given I'm also going to be executor of Bs estate in the fullness of time (and assuming I'm spared), I'd rather do what I can to prevent the issues from compounding over time...

ratechaser

xylophone said:

 It's a one liner in an extremely basic pro-forma will 

Saying what exactly?

 On the lines of "I leave my house situate at 123 Anytown Road  Anycounty to my father John Smith absolutely but in the hope/expectation that he will use it  as he sees fit to benefit my children Mary Smith, Peter Smith and Richard Smith?

Well there's the usual legalese about the estate going initially to the executors to hold in trust
to pay off any debts, taxes, testamentary expenses etc... but the last bit is that it says to pay the residue to "B, who is special guardian for my children"

with the proviso that if B does not survive A by 28 days then the estate residue is split equally between the children (which is then itself a problem because there's no detail on how it would be administered for the 2 minor children).

Another nuclear option is that I could be more hardball about funeral and probate costs, which I am covering out of my own pocket because I want the children to get as much as possible from the estate. So I've got a bit of skin in this game beyond purely being an executor - I really don't like the direction this is going despite everyone's stated (and I believe genuinely meant) good intentions. An even more nuclear option would be to force the sale of the property to pay for these expenses, but it's not a line I want to cross.