Will Discretionary Trust Help

Dumplin

Evening,
Hoping someone can help

Dad past-away 18m ago and on death his will required a discretionary trust to value of Nil Rate Band, of which the Spouse was to be considered the primary beneficiary there are 5 additional beneficiaries which on spouses death or earlier by her agreement the remaining capital was to be divided between the 5.

Probate achieved, but still struggling with registering with HMRC, executors have held funds due to being unable to set up a trustee bank account.

In the meantime Trustees and Spouse have agreed several loans distributed by executors, one to the Spouse towards purchase of a new house, (loan secured by a tenants in common deed with the trustees repayable on sale or death) and the remainder of the trust divided equally between the 5 beneficiaries, so trust balance now at zero.

The Trustees (who are family) agreed that no interest would be payable on the loan towards the house and that as the 5 beneficiaries would ultimately benefit from any increase in value of the property from the spouses will that they would issue a loan and not as % owned as a property. 

Trustees have been advised, to issue a deed of appointment, and a deed of release needs to be signed so that is it clear what tax relief the spouses estate can benefit from on her death (i.e. what was used of the deceased estate and what is still available) I think the solicitor thinks these are gifts from the trust as opposed to loans and treat the loan for the property as a property trust but I’m not sure.

The loans were issued repayable on death, as in reality only one or two of the 5 beneficiary will have enough in their estate to do this the reality is the trust would forefit repayment, do these deeds effectively close a trust?

I think only a single cash trust needs registering that has a nil balance and will eventually have the loan from the spouse paid into it to be re distributed to the beneficiaries either in final or as a further loan.

however Solicitor is advising usually the money spent by a Will Trust towards a property for a surviving spouse is converted to a percentage share of the house purchased. The benefit of doing it in the usual way is that Spouce and Will Trust equally share the risk/benefit of the value of the house going up or down from now until spouce dies. As Spouce lives in the property under the terms of the Will it would not be a capital gains tax issue for the trust (but it could be if it was let out and spouce lived in a care home). Hence, on the trust registration we would usually simply record that  Will Trust owns a certain percentage. 

I thought that if the value of the property went up the asset value would go up and potentially tax would be owed by the trust on the increase

What should happen in terms of registering trusts with HMRC to minimise costs and tax liability, both now and if the trust is closed say in 10-15 years?

What any advice much appreciated

MrsD x

Keep_pedalling

Was this an old will made prior to 9th Oct 2007 when the transferable NRB was introduced? Frankly you may be far better off getting shot of the DT through a deed of variation. DTs are a pain to manage and are subject to some pretty hefty taxation.

RAS

Deeds of variation need to be completed with 2 years of death, so action on is needed promptly.

Dumplin

Keep_pedalling said:

Was this an old will made prior to 9th Oct 2007 when the transferable NRB was introduced? Frankly you may be far better off getting shot of the DT through a deed of variation. DTs are a pain to manage and are subject to some pretty hefty taxation.

No Will was updated 2010

Dumplin

Whats the difference between getting rid of the DT through the deed to closing it out with the deed of appointment, and a deed of release. How then do I secure the £125k currently lent out the trust for the house if I do that.

Keep_pedalling

Dumplin said:

Keep_pedalling said:

Was this an old will made prior to 9th Oct 2007 when the transferable NRB was introduced? Frankly you may be far better off getting shot of the DT through a deed of variation. DTs are a pain to manage and are subject to some pretty hefty taxation.

No Will was updated 2010

Dumplin said:

Whats the difference between getting rid of the DT through the deed to closing it out with the deed of appointment, and a deed of release. How then do I secure the £125k currently lent out the trust for the house if I do that.

I am surprised it was suggested to go down the DT route an immediate post-death interest trust would be the most likely to be used these days.

A deed of variation would effectly mean your fathers NRB can be transferred to her estate, a deed of appointment would not do this. I really think you need legal advice ASAP.