Probate: Is Trust part of the estate for IHT purposes Form IHT205 Question 4

Sterlingtimes

My mother's brother formed a Discretionary Trust under his Will in March 2010, and he died in December 2010. As the primary beneficiary under that Trust, my mother lived in an apartment valued at £120,000 provided by the Discretionary Trust since her brother's death and until hospitalisation this year (about 13 years). The Trust paid the land rent, service charges, and periodic maintenance.

Given that this is a Discretionary Trust, is the answer to Q4 Yes or No?

poseidon1

As long as the trust is truly discretionary the answer would be no.

To be certain on this point contact the trustees who administer the trust and get them to confirm they are liable to submit an iht tax return on each tenth anniversary of the creation of the trust ( first anniversary should have been 2020) and that the value of the flat would have been included in the declaration to hmrc.  If they have done this or confirm they are required to do so, you are good to go with answering no.

May I add, that the trust assets not becoming a part of your mother's estate on her death, is the primary benefit of using this form of trust compared to a trust that gave her an absolute right of occupation of the flat.

Sterlingtimes

poseidon1 said:

May I add, that the trust assets not becoming a part of your mother's estate on her death, is the primary benefit of using this form of trust compared to a trust that gave her an absolute right of occupation of the flat.

This is extraordinarily helpful. Thank you so much. I got the jist of this while Googling but remained unsure.

Unfortunately, I have the burden of being the Trustee, and I will need legal assistance regarding the Trust. It was originally a New Zealand Trust recently assigned to me when the solicitor trustee retired, and a UK IHT declaration was not submitted. Having said that the value of the Trust is no greater than £120,000.

Keep_pedalling

Why are you attempting to complete IHT205 it has not required for deaths occurring after 31st Dec 2022?

poseidon1

Sterlingtimes said:

poseidon1 said:

May I add, that the trust assets not becoming a part of your mother's estate on her death, is the primary benefit of using this form of trust compared to a trust that gave her an absolute right of occupation of the flat.

This is extraordinarily helpful. Thank you so much. I got the jist of this while Googling but remained unsure.

Unfortunately, I have the burden of being the Trustee, and I will need legal assistance regarding the Trust. It was originally a New Zealand Trust recently assigned to me when the solicitor trustee retired, and a UK IHT declaration was not submitted. Having said that the value of the Trust is no greater than £120,000.

The information I supplied assumed this was a discretionary trust established under UK laws by a UK domiciled settlor ( for IHT purposes ). 

Since you have now advised to the contrary, you definitely require specialist legal advice to ensure your mother's occupation of the trust property was at the full discretion of the original overseas trustee and she had not been accorded  ( by NZ  supplementary deed) a right of occupation during her lifetime.

Suggest you seek advice of a STEP qualified  solicitor( Society of Trust and Estate Practitioners ), who can peruse the NZ trust documents you inherited together with any associated trust accounts  and ensure your mother' s occupation  of the property did conform to UK discretionary trust rules, so can be excluded in looking at her estate for IHT purposes.

Going forward, and assuming you wish to wind up the trust for your family, the same solicitor should guide you through the process of registering the trust with HMRC ( if you have not done so already ), determine the base cost of the property for future capital gains tax purposes, and advise on any Uk exit tax charges on trust wind up. Given the relatively low value of the trust fund, it is unlikely to be cost effective to continue as an ongoing  UK trust entity.

Sterlingtimes

poseidon1 said: The information I supplied assumed this was a discretionary trust established under UK laws by a UK domiciled settlor ( for IHT purposes ). 

Since you have now advised to the contrary, you definitely require specialist legal advice to ensure your mother's occupation of the trust property was at the full discretion of the original overseas trustee and she had not been accorded  ( by NZ  supplementary deed) a right of occupation during her lifetime.

Suggest you seek advice of a STEP qualified  solicitor( Society of Trust and Estate Practitioners ), who can peruse the NZ trust documents you inherited together with any associated trust accounts  and ensure your mother' s occupation  of the property did conform to UK discretionary trust rules, so can be excluded in looking at her estate for IHT purposes.

Going forward, and assuming you wish to wind up the trust for your family, the same solicitor should guide you through the process of registering the trust with HMRC ( if you have not done so already ), determine the base cost of the property for future capital gains tax purposes, and advise on any Uk exit tax charges on trust wind up. Given the relatively low value of the trust fund, it is unlikely to be cost effective to continue as an ongoing  UK trust entity.

Thank you for your kind guidance.

This Trust has followed a similar course to the fictional case of Jarndyce v Jarndyce, largely consequent upon contrivances between the settlor during his final years and my late brother. 

Anyway, I now know that I need to find a STEP-qualified solicitor. Is it best to work online nowadays?

There would be no IHT on my mother's estate even if the Trust property were to be included in the declaration.

This Trust has been a great burden on me, and I would like to wind it up if possible and square matters correctly with the beneficiaries.

Sterlingtimes

Keep_pedalling said:

Why are you attempting to complete IHT205 it has not required for deaths occurring after 31st Dec 2022?

Thank you for this correction.

poseidon1

Sterlingtimes said:

poseidon1 said: The information I supplied assumed this was a discretionary trust established under UK laws by a UK domiciled settlor ( for IHT purposes ). 

Since you have now advised to the contrary, you definitely require specialist legal advice to ensure your mother's occupation of the trust property was at the full discretion of the original overseas trustee and she had not been accorded  ( by NZ  supplementary deed) a right of occupation during her lifetime.

Suggest you seek advice of a STEP qualified  solicitor( Society of Trust and Estate Practitioners ), who can peruse the NZ trust documents you inherited together with any associated trust accounts  and ensure your mother' s occupation  of the property did conform to UK discretionary trust rules, so can be excluded in looking at her estate for IHT purposes.

Going forward, and assuming you wish to wind up the trust for your family, the same solicitor should guide you through the process of registering the trust with HMRC ( if you have not done so already ), determine the base cost of the property for future capital gains tax purposes, and advise on any Uk exit tax charges on trust wind up. Given the relatively low value of the trust fund, it is unlikely to be cost effective to continue as an ongoing  UK trust entity.

Thank you for your kind guidance.

This Trust has followed a similar course to the fictional case of Jarndyce v Jarndyce, largely consequent upon contrivances between the settlor during his final years and my late brother. 

Anyway, I now know that I need to find a STEP-qualified solicitor. Is it best to work online nowadays?

There would be no IHT on my mother's estate even if the Trust property were to be included in the declaration.

This Trust has been a great burden on me, and I would like to wind it up if possible and square matters correctly with the beneficiaries.

If consulting a STEP firm of solicitors, it would be up to them whether they are prepared to advise remotely.

That said a face to face meeting after providing relevant documentation and summary of the trust history culminating in your current trusteeship, should assist in arriving at a postive course of action going forward. After supplying the initial information, no harm requesting  the firm of solicitors  supply an indicative quote to wind up the trust.

 Hopeful this will not descend into a real life Jarndyce v Jarndyce scenario!

Sterlingtimes

poseidon1 said:

If consulting a STEP firm of solicitors, it would be up to them whether they are prepared to advise remotely.

Thank you for putting your effort into supporting me. I hope that I help others in the same manner that you have helped me.

You have set me off on the right course, and I feel more relaxed about my prospective activity.

Sterlingtimes

I have appointed an appropriate solicitor who will now deal with these matters. Again, many thanks.