Buying out an Interest in Possession Trust

dragonflyangel

Could I please have some advice re the following scenario.  A house is owned by husband and wife as tenants in common.  The wife dies leaving her half of the house to the husband in an Interest in Possession trust.  On the death of the husband the house will pass via the trust to a single beneficiary. 
The husband wishes to buy the half of the house held in trust. The value of half of the house would then be passed to the beneficiary and the trust woudl be wound up. There are three trustees who would all agree to this proposition.  Are there any legal or financial implications that should be considered? 

Keep_pedalling

The only financial issue I can think of is SDLT,  but I don’t think that applies where a beneficial owner punches the legal ownership, perhaps you should ask the specific question over on the housing board.

The trustees need to make sure the trust is wound up correctly so I would use a suitable qualified solicitor to handle the purchase correctly.

dragonflyangel

Keep_pedalling said:

The only financial issue I can think of is SDLT,  but I don’t think that applies where a beneficial owner punches the legal ownership, perhaps you should ask the specific question over on the housing board.

The trustees need to make sure the trust is wound up correctly so I would use a suitable qualified solicitor to handle the purchase correctly.

The solicitor who set up the trust will definitely be employed to wind it up if the husband goes ahead - I am one of the trustees and I just wanted to check that there weren't any obvious pitfalls to the plan.  Many thanks for your reply - it's much appreciated.

GDB2222

What you are proposing doesn’t make much sense. If the husband buys the half share in the house from the trustees, then the money he pays will be held in the trust, and he will be entitled to the investment income for the rest of his life. Only when he dies will the reversioner receive the capital. 

Can I check that all the beneficiaries are over 18 and can agree on what to do? 

In the unlikely event of the reversioner dying before the husband, what would happen? Is there any possibility of a minor or as yet unborn beneficiary? 

doodling

Hi,

Does the trust have provision to be ended in this way?

If not then you might need the agreement of the remaindermen as well as the trustees - ending the trust might cause the half ownership of the property to revert to the remaindermen and it therefore may be them that the half owner needs to purchase the rest of the property from, not the trustees.

Are the remaindermen on board with this plan?

Definitely one for legal advice, with a copy of the will setting up the trust.

Keep_pedalling

GDB2222 said:

What you are proposing doesn’t make much sense. If the husband buys the half share in the house from the trustees, then the money he pays will be held in the trust, and he will be entitled to the investment income for the rest of his life. Only when he dies will the reversioner receive the capital. 

Can I check that all the beneficiaries are over 18 and can agree on what to do? 

In the unlikely event of the reversioner dying before the husband, what would happen? Is there any possibility of a minor or as yet unborn beneficiary? 

The money won’t be held in trust, the purchase will also see the winding up of the trust and the remaindermen will get their inheritance early. 

GDB2222

Keep_pedalling said:

GDB2222 said:

What you are proposing doesn’t make much sense. If the husband buys the half share in the house from the trustees, then the money he pays will be held in the trust, and he will be entitled to the investment income for the rest of his life. Only when he dies will the reversioner receive the capital. 

Can I check that all the beneficiaries are over 18 and can agree on what to do? 

In the unlikely event of the reversioner dying before the husband, what would happen? Is there any possibility of a minor or as yet unborn beneficiary? 

The money won’t be held in trust, the purchase will also see the winding up of the trust and the remaindermen will get their inheritance early. 

That’s very generous of the husband. I don’t know the family, but it is not obvious that he has been properly advised.

dragonflyangel

GDB2222 said:

Keep_pedalling said:

GDB2222 said:

What you are proposing doesn’t make much sense. If the husband buys the half share in the house from the trustees, then the money he pays will be held in the trust, and he will be entitled to the investment income for the rest of his life. Only when he dies will the reversioner receive the capital. 

Can I check that all the beneficiaries are over 18 and can agree on what to do? 

In the unlikely event of the reversioner dying before the husband, what would happen? Is there any possibility of a minor or as yet unborn beneficiary? 

The money won’t be held in trust, the purchase will also see the winding up of the trust and the remaindermen will get their inheritance early. 

That’s very generous of the husband. I don’t know the family, but it is not obvious that he has been properly advised.

If he went ahead,  the husband would own the house outright and the single beneficiary of the trust, who is his daughter, would have the funds to pay off her own mortgage.  He has recently come into some money and wishes to pass some to his daughter and was wondering if buying the trust out would be a good way of doing this.
To clarify, the only people involved are the husband, the single beneficiary of the trust who is his daughter and is over 18, and the three trustees (me, the husband and the daughter).  All three of us are in agreement.
The wife's will is silent regarding winding the trust up before the husband's death.
No formal advice has yet been taken - I just wanted to find out if there were any obvious pitfalls.  If the husband decides to go ahead a solicitor will definitely be employed.  From the comments so far I think it would be worth pursuing this plan further.

Keep_pedalling

Would it not be simpler to leave the trust as it is and for him to gift some of his windfall instead? That may be the best option as far as IHT is concerned especially if the windfall is an inheritance from someone other than his wife.

How long ago did his wife die?

GDB2222

dragonflyangel said:

GDB2222 said:

Keep_pedalling said:

GDB2222 said:

What you are proposing doesn’t make much sense. If the husband buys the half share in the house from the trustees, then the money he pays will be held in the trust, and he will be entitled to the investment income for the rest of his life. Only when he dies will the reversioner receive the capital. 

Can I check that all the beneficiaries are over 18 and can agree on what to do? 

In the unlikely event of the reversioner dying before the husband, what would happen? Is there any possibility of a minor or as yet unborn beneficiary? 

The money won’t be held in trust, the purchase will also see the winding up of the trust and the remaindermen will get their inheritance early. 

That’s very generous of the husband. I don’t know the family, but it is not obvious that he has been properly advised.

If he went ahead,  the husband would own the house outright and the single beneficiary of the trust, who is his daughter, would have the funds to pay off her own mortgage.  He has recently come into some money and wishes to pass some to his daughter and was wondering if buying the trust out would be a good way of doing this.
To clarify, the only people involved are the husband, the single beneficiary of the trust who is his daughter and is over 18, and the three trustees (me, the husband and the daughter).  All three of us are in agreement.
The wife's will is silent regarding winding the trust up before the husband's death.
No formal advice has yet been taken - I just wanted to find out if there were any obvious pitfalls.  If the husband decides to go ahead a solicitor will definitely be employed.  From the comments so far I think it would be worth pursuing this plan further.

If *all* the potential beneficiaries can be ascertained, and all are over 18, the principle in the case of Saunders v Vautier applies, and the trust can be wound up at the behest of the beneficiaries. The trustees have no say in that. The beneficiaries simply decide between themselves.

The problems arise if the will doesn't give the daughter an absolute interest. Then you need to consider what happens if the daughter dies before the father. It's quite common to find that the will specifies that, if she dies before dad, her children inherit her interest  in the trust. The court would then need to give permission, which is an expensive process, even though the likelihood of it happening is quite low. That applies even if the daughter has no children yet.

The solicitor can advise.