Registering Trust - Deceased Beneficiary

poseidon1

https://www.moneymarketing.co.uk/analysis/danby-bloch-the-dead-settlor-rule/#:~:text=Originally, the rule was that,was) could tax the gain.


Although, not directly bearing on your wife's family trust situation, this old case analysis back in 2014 may provide you (and anyone else with involvement with these types of bond trusts), some useful insight into their operation and opportunities  to mitigate/ avoid the chargeable event income tax charge ( at 45%) potentially levied on trustees.

You may also find the lack of technical trust expertise of the financial adviser who raised  the query, familiar in your circumstances!

henryhallsdanceband

poseidon1 said:

henryhallsdanceband said:

poseidon1 said:

henryhallsdanceband said:

Just a quick update on my ongoing 'project' sorting out my MiLs Trusts (of which my wife and my now deceased BiL are the named beneficiaries) .  I've now got all three trusts registered with the HMRC TRS.   Next we are 'retiring' my MiL and her (now deceased) sister as the trustees of the trusts, and appointing my wife and myself in their place (Halifax have OK'd this)  I'm going on the basis that my wife is the assigned replacement for my MiL and I am the assigned replacement for my MiL's sister (though deceased she's still a named Trustee).  

Been speaking a lot with Halifax/Scottish Widows on the matter - the trusts were set up on the basis of advice given by Halifax Financial Advisors in financial reviews my MiL had with the Halifax (as she had existing investments with them) and then set up by Halifax/Scottish Widows.  The reviews were some 20-25 yrs ago and a few years apart.  It frustrates me (more than a little) that the Halifax seems unable to tell me the precise nature of the trusts that they set up for my MiL - given they were set them up by Halifax FAs.

Anyway.  Once we've got that sorted out I'll prob get STEP advice on understanding the status of the trusts and what can be done with the funds sitting in the investments - either prior to my MiL deciding to go fly with the angels or after.  At least one of the trusts is definitely a Bare Trust - and it would be good to know if my wife could request of the trustees for some funds to be released out of the investment held in it sooner rather than later...to help her with some current 'life stuff' an additional bit of income would go a long way to helping with.

Thanks to all for advice so far provided.

Sounds like progress ( of sorts).

Having mentioned Halifax/Scottish Widows as involved with the original trusts, it's a very strong liklihood that the underlying trust investments in each case are Scottish Widows life company investment bonds.

Not overly surprised that the present Halifax financial  services team are not particularly helpful in providing the guidance your family now requires. Neither Halifax, Bank of Scotland or Lloyds ( all part of the same banking group ) sell IHT mitigation schemes anymore.

Such services are now handled by Schroder Personal Wealth who have partnered with Lloyds to provide this type of 'sophisticated' planning for the banking group customers. Understandably Schroders would not be interested in picking through the detritus of Halifax/Scottish Widows legacy trust schemes.

At this point you now need to turn to a STEP qualified trust specialist, to pick through each trust deed to determine what powers you have to advance trust capital, and the best way to achieve this objective.

 If I am correct about the nature of the trust investments,  the one thing you should not be doing is blindly encashing the investment bonds whilst owned by the trustees. Depending on the investment appreciation over the years, the tax consequences ( on at least two of trusts ) could be significant.

 As for the bare trust (if indeed it is a bare trust), any tax consequences of encashing investment in that structure will be directly  bourne by the underlying beneficiaries, on a 'look through' basis.

The trust specialist, will no doubt advise in greater detail.

Each Trust holds a Personal Investment Plan (Bond); the policies being Joint Life - payable on 2nd death.  Goodness knows what that refers to as the beneficiaries of the investments held by the Trusts are my wife and her brother - and they are identified in the Investments as the lives covered.  We will go to our FA and see if he can engage with a STEP specialist if he is unable to deal with it himself.  

We have some financial pressures at the moment and if my wife could draw on the investments in trust over 2-3 years without her incurring big tax hits that would be good.  But given my MiL is now 94 and frail we have to take into account potential IHT and also understand whether any money coming out of any of the trust funds before she decides to go 'fly with the angels' would be considered 'deprivation of assets' (or whatever the equivalent in IHT terms) in respect of the 7yr rule. I don't know whether the funds in the investments held in trust are considered to be my MiLs or whether they are the beneficiaries.

Of Trusts and Investments held in trust I know some things; however of them many things I know not.

Suggest you nix the FA, who evidently is out of their depth and no longer has the 'backroom' technical support the larger insurance companies used to provide with regard to these IHT mitigation schemes.

As Savvy_sue suggests it is incumbent on the family to seek a STEP trust specialist to assist. A decent sized Chartered accountancy firm with reasonable IFA links should be able to review the various trust documents and determine if there is reasonable scope to provide capital advances to your wife and her brother ( parity is important) , notwithstanding the possibility that MIL maybe the primary beneficiary at this point.

Given how old these trust arrangements are, it would not surprise me that one or other of the formal settlements are life interest trusts for MIL, but with trustee power to advance capital to the 'back stop' beneficiaries ( in all likelihood your wife and her brother) at the trustees' discretion.

However, if indeed MIL is the current primary life interest beneficiary, the trust capital is treated as forming part of her personal estate, so advancing capital to others would constitute a Potential Exempt Transfer, requiring her to survive 7 years for that 'gift' from her estate to fall out of account. If she dies prior to, the capital advanced reduces her nil rate band at that time. Also, as you pointed out 'deprivation of capital'  for local authority assessment purposes, could also be in point under these circumstances.

Alternatively, both MIL and her children could be coterminous life interest beneficiaries of one or other of the trusts, so your wife may already have a contingent trust entitlement she could access, without triggering potential deprivation of capital issues.

You mentioned a bare trust, who are/is the named beneficiaries/y of that arrangement? If your wife and her brother are the named beneficiaries, then that 'trust ' capital is already theirs to do with as they please.

Engage a STEP specialist accountant ASAP, as indicated they can advise on options open to vary/restructure the trusts , but also outline how to mitigate the potential  income tax liabilities now embedded within the gains accrued  by the bonds over the years.

 The fact that your wife and her brother are joint lives assured on the bonds, prevents the bonds being prematurely encashed on the eventual death of MIL. This would have been deliberate long term income tax planning when the bond trusts were originally created. 

Thankyou for this - most useful.  

Yes - the Trust that is clearly defined as a Bare Trust has my wife and her (recently deceased) brother as the named beneficiaries.  So from your advice it would appear that given my BiLs death, all of the funds in the investment held in that trust now (automatically) sit with any wife?  I am aware that there may by Income Tax considerations in respect of the investment gain - though that gain is spread out over the period since the investment was set up (18yrs) and so the annual gain that would count as income in respect of Income Tax is not going to be great and her income would all sit within the base rate.

The other main trust is stated as a Deed of Gift - with an associated Loan Agreement (there is a very small 3rd trust I am unsure about but it is likely the same form as this 2nd one).  Really don't understand this one - though I know that my MiL has not drawn anything of her initial investment since she set it up - and she does not intend to have to do so.

I am afraid I don't really understand the f'premature encasement' aspect mentioned in your final paragraph in respect of my wife and her brother being Joint Lives Assured...with life assurance based upon second death.  

That's what my FA will help on and why, as advised, I will engage with a STEP specialist.

poseidon1

henryhallsdanceband said:

poseidon1 said:

henryhallsdanceband said:

poseidon1 said:

henryhallsdanceband said:

Just a quick update on my ongoing 'project' sorting out my MiLs Trusts (of which my wife and my now deceased BiL are the named beneficiaries) .  I've now got all three trusts registered with the HMRC TRS.   Next we are 'retiring' my MiL and her (now deceased) sister as the trustees of the trusts, and appointing my wife and myself in their place (Halifax have OK'd this)  I'm going on the basis that my wife is the assigned replacement for my MiL and I am the assigned replacement for my MiL's sister (though deceased she's still a named Trustee).  

Been speaking a lot with Halifax/Scottish Widows on the matter - the trusts were set up on the basis of advice given by Halifax Financial Advisors in financial reviews my MiL had with the Halifax (as she had existing investments with them) and then set up by Halifax/Scottish Widows.  The reviews were some 20-25 yrs ago and a few years apart.  It frustrates me (more than a little) that the Halifax seems unable to tell me the precise nature of the trusts that they set up for my MiL - given they were set them up by Halifax FAs.

Anyway.  Once we've got that sorted out I'll prob get STEP advice on understanding the status of the trusts and what can be done with the funds sitting in the investments - either prior to my MiL deciding to go fly with the angels or after.  At least one of the trusts is definitely a Bare Trust - and it would be good to know if my wife could request of the trustees for some funds to be released out of the investment held in it sooner rather than later...to help her with some current 'life stuff' an additional bit of income would go a long way to helping with.

Thanks to all for advice so far provided.

Sounds like progress ( of sorts).

Having mentioned Halifax/Scottish Widows as involved with the original trusts, it's a very strong liklihood that the underlying trust investments in each case are Scottish Widows life company investment bonds.

Not overly surprised that the present Halifax financial  services team are not particularly helpful in providing the guidance your family now requires. Neither Halifax, Bank of Scotland or Lloyds ( all part of the same banking group ) sell IHT mitigation schemes anymore.

Such services are now handled by Schroder Personal Wealth who have partnered with Lloyds to provide this type of 'sophisticated' planning for the banking group customers. Understandably Schroders would not be interested in picking through the detritus of Halifax/Scottish Widows legacy trust schemes.

At this point you now need to turn to a STEP qualified trust specialist, to pick through each trust deed to determine what powers you have to advance trust capital, and the best way to achieve this objective.

 If I am correct about the nature of the trust investments,  the one thing you should not be doing is blindly encashing the investment bonds whilst owned by the trustees. Depending on the investment appreciation over the years, the tax consequences ( on at least two of trusts ) could be significant.

 As for the bare trust (if indeed it is a bare trust), any tax consequences of encashing investment in that structure will be directly  bourne by the underlying beneficiaries, on a 'look through' basis.

The trust specialist, will no doubt advise in greater detail.

Each Trust holds a Personal Investment Plan (Bond); the policies being Joint Life - payable on 2nd death.  Goodness knows what that refers to as the beneficiaries of the investments held by the Trusts are my wife and her brother - and they are identified in the Investments as the lives covered.  We will go to our FA and see if he can engage with a STEP specialist if he is unable to deal with it himself.  

We have some financial pressures at the moment and if my wife could draw on the investments in trust over 2-3 years without her incurring big tax hits that would be good.  But given my MiL is now 94 and frail we have to take into account potential IHT and also understand whether any money coming out of any of the trust funds before she decides to go 'fly with the angels' would be considered 'deprivation of assets' (or whatever the equivalent in IHT terms) in respect of the 7yr rule. I don't know whether the funds in the investments held in trust are considered to be my MiLs or whether they are the beneficiaries.

Of Trusts and Investments held in trust I know some things; however of them many things I know not.

Suggest you nix the FA, who evidently is out of their depth and no longer has the 'backroom' technical support the larger insurance companies used to provide with regard to these IHT mitigation schemes.

As Savvy_sue suggests it is incumbent on the family to seek a STEP trust specialist to assist. A decent sized Chartered accountancy firm with reasonable IFA links should be able to review the various trust documents and determine if there is reasonable scope to provide capital advances to your wife and her brother ( parity is important) , notwithstanding the possibility that MIL maybe the primary beneficiary at this point.

Given how old these trust arrangements are, it would not surprise me that one or other of the formal settlements are life interest trusts for MIL, but with trustee power to advance capital to the 'back stop' beneficiaries ( in all likelihood your wife and her brother) at the trustees' discretion.

However, if indeed MIL is the current primary life interest beneficiary, the trust capital is treated as forming part of her personal estate, so advancing capital to others would constitute a Potential Exempt Transfer, requiring her to survive 7 years for that 'gift' from her estate to fall out of account. If she dies prior to, the capital advanced reduces her nil rate band at that time. Also, as you pointed out 'deprivation of capital'  for local authority assessment purposes, could also be in point under these circumstances.

Alternatively, both MIL and her children could be coterminous life interest beneficiaries of one or other of the trusts, so your wife may already have a contingent trust entitlement she could access, without triggering potential deprivation of capital issues.

You mentioned a bare trust, who are/is the named beneficiaries/y of that arrangement? If your wife and her brother are the named beneficiaries, then that 'trust ' capital is already theirs to do with as they please.

Engage a STEP specialist accountant ASAP, as indicated they can advise on options open to vary/restructure the trusts , but also outline how to mitigate the potential  income tax liabilities now embedded within the gains accrued  by the bonds over the years.

 The fact that your wife and her brother are joint lives assured on the bonds, prevents the bonds being prematurely encashed on the eventual death of MIL. This would have been deliberate long term income tax planning when the bond trusts were originally created. 

Thankyou for this - most useful.  

Yes - the Trust that is clearly defined as a Bare Trust has my wife and her (recently deceased) brother as the named beneficiaries.  So from your advice it would appear that given my BiLs death, all of the funds in the investment held in that trust now (automatically) sit with any wife?  I am aware that there may by Income Tax considerations in respect of the investment gain - though that gain is spread out over the period since the investment was set up (18yrs) and so the annual gain that would count as income in respect of Income Tax is not going to be great and her income would all sit within the base rate.

The other main trust is stated as a Deed of Gift - with an associated Loan Agreement (there is a very small 3rd trust I am unsure about but it is likely the same form as this 2nd one).  Really don't understand this one - though I know that my MiL has not drawn anything of her initial investment since she set it up - and she does not intend to have to do so.

I am afraid I don't really understand the f'premature encasement' aspect mentioned in your final paragraph in respect of my wife and her brother being Joint Lives Assured...with life assurance based upon second death.  

That's what my FA will help on and why, as advised, I will engage with a STEP specialist.

OK, in the light of all this new information it really is necessary for your  to engage a STEP professional ASAP without further delay , not only to deal with the trusts but also to revisit your wife's dealings with her deceased's brother's estate.

The complete lack of understanding of trust matters between yourselves and the Halifax FA is worrying and may already have lead to your wife under declaring the extent of her brother's estate.

Why do I say this? You now state your wife and BIL were the sole beneficiaries of the Bare Trust. This means as adults they each owned the underlying bond outright on a 50 :50 basis. On his death, and contrary to your assumption, his half share passed to his estate now to be distributed by virtue of his  intestacy back to his mother, presumably an outcome entirely contrary to her original expectations!

As for the Gift And loan trusts, which you originally ( wrongly ) described as discretionary trusts. If these were originally created by MIL  ( rather than someone else ) by way of substantial loan and smaller gifts,  then in all likelihood the interest in possession beneficiaries from day one were always her children, with MIL retaining a fiscal benefit solely related to the value of the original loans to the trusts. So MIL would never have been a beneficiary of those trusts merely an outstanding creditor to the extent of outstanding loans.

So what does this mean for BIL's estate, well in addition to 50% of the bare trust  bond to be declared for his estate, there are also two potentially Loan Trust values to be ascertained and included also. As to what actually happens to his post death interest in those trusts, that entirely depends on the trust wordings which clearly neither you or the FA can decipher.

So if the trusts and BIL's estate are not to descend  into complete chaos, get a trust specialist from STEP on the case immediately. 

I get that you wife could use some of money now embedded in these trust arrangements, but the Halifax FA is a liabilty in this regard. Get the STEP professional to identify where and how much your wife can safely access from these various sources. 

Seems to me that subsequent to your BILs death in October there has been zero progress on trust matters which is disappointing.