IHT allowance residue & Estate incls Lifetime Settlement Trust

MaidaVale3499

EDITED to add detail/clarify

Hello

Does anyone have any experience of dealing with a Lifetime Settlement Trust after the death of the Trust's Settlor please? 

 The trust "contained" my beloved recently deceased father's 50% ownership of our bungalow (with my already owning the other 50% outright, having inherited it from my mother's via her will in 2015).  The Land Registry entry details the bungalow as being jointly owned as joint tenants as described above.  Dad and I were only Trustees of his LST which is dated Dec 2013.  My lovely Dad passed away this month.

My mother's 50% share of bungalow was valued at half its then current (2015) market value, £140k (correction:  it was £120k) on her death in Oct 2015. I I herited this and all her estate with a grand total of £158k.  So I believe Dad would have nil RNRB.

However, subsequently my father and I had to instigate a subsidence claim for the bungalow in 2020 (claim ongoing as of today) with our insurers and the reality is the bungalow is currently only worth land value of c£100k because a total demolition & rebuild is required.  The good news is that our insurance last week has FINALLY accepted full liability & approved the claim and so the demo and rebuild will be their responsibility minus a £1k excess.  However it will be a minimum of 18 months before the new bungalow will be built/complete but I assume that approved claim forms part of Dad's estate.  Having researched, a rebuilt detached bungalow would be c£360k

I am sole executor and beneficiary of my father's estate (only child) and in most respects my father's estate is simple and would be under his NRB allowance c£491k (which includes the calculated residue from Mums NRB).  I do need to ascertain if the "property" placed into the LST 10 years before dad's death needs to be included in probate total....but even if the property is valued for probate at its at rebuilt value of £360k/2) and if it is to be included in the grand total of Dad's estate for probate the grand  total of Dad's assets is still below his NRB of  £491k.  (I suspect I will have some professional probate/legal fees to deduct as well).

Question:  Is it correct that my father "inherits" the unused residue of my late mums IHT allowance (eg c£170k) even though my mum bequeathed 100% of her estate to me?

Any thoughts very welcome please.

Keep_pedalling

What was the what was the total value of your mother’s estate? If it did not exceed £325 then then the amount transferable will be £325k - the net value of her estate. Any subsequent devaluation of the property can’t be retrospectively applied to her estate. 

If your father put his share into a trust (never a sensible thing to do) prior to 6th April 2017 you will not be able to claim his RNRB either, although his share still counts towards his IHT as presumably he was still living in it at some point in the last 7 years.

Having said all that it does not sound like his estate exceeded his own NRB unless he was sitting on other major asets.

MaidaVale3499

Keep_pedalling said:

What was the what was the total value of your mother’s estate? If it did not exceed £325 then then the amount transferable will be £325k - the net value of her estate. Any subsequent devaluation of the property can’t be retrospectively applied to her estate. 

If your father put his share into a trust (never a sensible thing to do) prior to 6th April 2017 you will not be able to claim his RNRB either, although his share still counts towards his IHT as presumably he was still living in it at some point in the last 7 years.

Having said all that it does not sound like his estate exceeded his own NRB unless he was sitting on other major asets.
______________________________________


Thanks so much for answering Keep_pedalling  

The total value of my mums estate was £158,449, probate granted in Dec 2015 thus leaving a residue of £166,551 of her NRB (nil rate band?).  Is the £166.551 transferable to my father's NRB even though I was the sole beneficiary to my mum's estate (TCV £158,449)?

The Lifetime Settlement Trust, which placed Dad's 50% share of bungalow (his perm & only residence from 1963 to his death in 2023) was signed 16th December 2013.  At this time 50% of the bungalow would have had a value of approx £120k (ie pre subsidence), the current value of a 50% of bungalow is closer to £50k (liability for claim has been accepted and approved by insurance company)

My father's estate excluding "his" 50% of the bungalow in the LST has an approx value of £315,447k.  Less Funeral costs of c£6k

Thank you

Keep_pedalling

MaidaVale3499 said:

Keep_pedalling said:

What was the what was the total value of your mother’s estate? If it did not exceed £325 then then the amount transferable will be £325k - the net value of her estate. Any subsequent devaluation of the property can’t be retrospectively applied to her estate. 

If your father put his share into a trust (never a sensible thing to do) prior to 6th April 2017 you will not be able to claim his RNRB either, although his share still counts towards his IHT as presumably he was still living in it at some point in the last 7 years.

Having said all that it does not sound like his estate exceeded his own NRB unless he was sitting on other major asets.
______________________________________


Thanks so much for answering Keep_pedalling  

The total value of my mums estate was £158,449, probate granted in Dec 2015 thus leaving a residue of £166,551 of her NRB (nil rate band?).  Is the £166.551 transferable to my father's NRB even though I was the sole beneficiary to my mum's estate (TCV £158,449)?

The Lifetime Settlement Trust, which placed Dad's 50% share of bungalow (his perm & only residence from 1963 to his death in 2023) was signed 16th December 2013.  At this time 50% of the bungalow would have had a value of approx £110k (ie pre subsidence), the current value of a 50% of bungalow is closer to £50k (liability for claim has been accepted and approved by insurance company)

My father's estate excluding "his" 50% of the bungalow in the LST has an approx value of £315,447k.  Less Funeral costs of c£6k

Thank you

Yes the unused portion of her NRB can be transferred to his estate although it looks like you won’t need it as his estate is a little under the NRB. 

MaidaVale3499

Keep_pedalling said:

MaidaVale3499 said:

Keep_pedalling said:

What was the what was the total value of your mother’s estate? If it did not exceed £325 then then the amount transferable will be £325k - the net value of her estate. Any subsequent devaluation of the property can’t be retrospectively applied to her estate. 

If your father put his share into a trust (never a sensible thing to do) prior to 6th April 2017 you will not be able to claim his RNRB either, although his share still counts towards his IHT as presumably he was still living in it at some point in the last 7 years.

Having said all that it does not sound like his estate exceeded his own NRB unless he was sitting on other major asets.
______________________________________


Thanks so much for answering Keep_pedalling  

The total value of my mums estate was £158,449, probate granted in Dec 2015 thus leaving a residue of £166,551 of her NRB (nil rate band?).  Is the £166.551 transferable to my father's NRB even though I was the sole beneficiary to my mum's estate (TCV £158,449)?

The Lifetime Settlement Trust, which placed Dad's 50% share of bungalow (his perm & only residence from 1963 to his death in 2023) was signed 16th December 2013.  At this time 50% of the bungalow would have had a value of approx £110k (ie pre subsidence), the current value of a 50% of bungalow is closer to £50k (liability for claim has been accepted and approved by insurance company)

My father's estate excluding "his" 50% of the bungalow in the LST has an approx value of £315,447k.  Less Funeral costs of c£6k

Thank you

Yes the unused portion of her NRB can be transferred to his estate although it looks like you won’t need it as his estate is a little under the NRB. 

Thanks again. Im so very grateful.  Please may I extend your patience a little further..............

I have just checked on Right Move and the most recently sold bungalow (almost identical to ours in size/rooms/style and on same estate BUT without subsidence) sold in June 2023 for £360,000.......***so adding in 50% of that value to ALL of Dad's other assets:-

Dad's Total Assets with estimated funeral costs deducted             = £490,327   (a)

Dad NRB + Mums Transferred Unused NRB                                 = £491,551    (b)

Assets - NRB Allowances                                                               = £1,223


Question:
***I assume that because we have had the insurance claim approved (ie to rebuild a new identical bungalow but without subsidence issue) and that the approved claim passes on to the estate that I need to include a value for the bungalow that does not devaluate it for subsidence?

One final Question please:
I recognise that I am going to need a solicitor to discuss how to deal with (wind up?)  the LST but because I have managed Dad's finances since 2013 & have full fiscal transaction records since then eg I know Dad has not exceeded the Annual Gift Limit of £3k..........I can collate all records & complete a genuine & fully accurate probate application.......so do I apply for Probate first and then have LST actioned please?

Thank you again!

Keep_pedalling

I think the answer to Q1 is yes.

Your valuation is so close to the NRB that I would be careful about submitting probate without getting a professional valuation to avoid any HMRC challenge. You do need professional advice on winding up the trust.

I can’t help think both your parents may have been poorly advised both in the case of your mothers will and your father creating the trust. Had your mothers will created an immediate post-death interest trust giving your father a life interest it would not have used up her NRB and had you father not put his share in trust, which as far as I can see at the time offered no financial benefit, you would now have the residential NRB to call on if it was needed. 

Has this house also been your home? If not the above decisions leave you with a potential CGT liability.  

MaidaVale3499

Keep_pedalling said:

I think the answer to Q1 is yes.

Your valuation is so close to the NRB that I would be careful about submitting probate without getting a professional valuation to avoid any HMRC challenge. You do need professional advice on winding up the trust.

I can’t help think both your parents may have been poorly advised both in the case of your mothers will and your father creating the trust. Had your mothers will created an immediate post-death interest trust giving your father a life interest it would not have used up her NRB and had you father not put his share in trust, which as far as I can see at the time offered no financial benefit, you would now have the residential NRB to call on if it was needed. 

Has this house also been your home? If not the above decisions leave you with a potential CGT liability.  

Many thanks again.  Yes I suspected that being so close to NRB it would be prudent to get a valuation.

Mum and Dad's wills were written in 2004, a little in haste following Mum being diagnosed with dementia  at age 77 years......but we did take advice from local solicitors.   I should add that she had full cognition at this time.  We also set up powers of attorney for both.

Sadly, after mum passed away in 2015, we did not reassess Dad's will and were advised re the LST by Dad's IFA company in 2013.  I think at this time Dad and I were very raw from fighting the NHS for CHC funding for mum, which we "won" and when we discussed protection of assets, as opposed to deprivation of assets, the IFA proposed the LST.  We were also led to believe by IFA that should Dad live 7 years+ beyond the instigation of the LST that the value of the property within the trust would be outside of probate?

I left my property and moved in to live with my parents in their bungalow in 2002 (to assist with mum's care).  I will continue to reside here until it is demolished and rebuilt.  So I think my CGT liability is on my property as it has been rented out for 21 years.

Thanks