10 year anniversary IHT charges on Trusts Help Please

poseidon1

piggy said:

Hi Poseidon 1, once again thanks for your valued comments. As you most you most probably aware I am like a fish floundering in water with this trust business.Since my last posts I have now found out that within the trust document there are two trusts, one relates to property and one relates to Money left in trust to my brother The money my mother left was left equally to the four of us, however the money left to my brother, was put in trust and I have only just picked up on this.Under the terms of the will, the trustees , my sister and I were allowed to manage and invest this on his behalf if we wanted to. Instead we let him have all the money on the next day, that probate was granted.This did not break any of the conditions in the trust document My question is, would be subject to any charges by HMRC.

You say there were two separate trusts for your brother created under the terms of your mother's Will. This would have been unusual and unnecessary, unless the terms of the trusts relating to the money differ from those for the property. Usually the terms for both assets would be the same.

It would have been helpful if you could have provided the precise wording of the operative trust clauses rather than trying to paraphrase.  That would indicate to me whether you did have unfettered trustee powers to distribute to your brother his 1/4 share of estate cash rather than retained in trust for you and your sister to invest and manage on his behalf.

However, assuming there was no breach of trust by doing ( ie you had discretionary powers to do so), there should  are no tax consequences arising by virtue of the trust capital payment to him and nothing to be reported to HMRC, assuming the trust was an IPDI or special trust for disabled person.

However, I would observe that as trustee you have done yourselves no favours by doing so, since that cash would ordinarily have been available to assist in  defraying the cost of repairs and maintenance on the property, which you state are the trustees responsibility. I assume therefore you are having to meet all those costs from your own pockets?

Finally, the fact that your brother's share of cash together with the house were subject to trust, does bring me back to my speculation whether the trust was indeed established under the special provisions for disabled persons. No doubt an appropriate adviser having sight of the trust document when assisting with HMRC registration on your behalf can venture their view.

piggy

Hi poseidon hope this helps. I think this is the wording which will throw more light on the subject.

Subject to the provisions of the next clause, I give the rest of my estate both real and personal whatsoever an wherever situate including any ready money subject to and after the payment of my debts,funeral and testamentary expenses[the trust fund] to my trustees to divide as follows

d]25% to my son Nicholas -------- [ the beneficiary] Aforsaid subject to clause 8 below

 if my son Nicholas------- survives me the following trust powers and provisions  shall apply, in relation to the share of the trust fund to which[but not for this clause] the clause would be are becomes entitled to absoluely under the proceeding cause and the property  which currently represents it[the beneficiaries share.

My trustees at any time or times during the period of 125 years from my death [that being the perpetuity period applicable to this clause]

i]by deed irrovocable or revocable appoint all appoint that all or any parts of the income or capital of the beneficiarys share shall be held on such trusts[including discretionary and protective ] ones in favour or fot the benefit of all or any one or more of

[1[ The benificiary and

[2] anyone who at that time during that period the spouse or

[whether or not remarried] the former spouse widow or widower of the beneficiary or any child or children of the benificiary

and with subject to such powers  [including  dipositive and administrative ones exercisible by my trustees think fit but I ask them [ without imposing any binding obligation] to take into account the needs of any support required by the beneficiary and

ii] transfer all or any part or parts of of the beneficiarys share to the trustees of any settlement whever established [ whos receipt shall be a good discharge to them ] to be held free from the trusts of this will and on thr trusts and with subject to the powers of settlement but only of those trust powers of that settlement but only if those trust powers and provisions are such that [ at the time of the transfer ] they could themselves created under [i] above

b] my trusteesmat by deed or deeds [and so to bind their successors] wholly or partially release or restrict the powers given the by this claus

In addition to the general law and in the administeration of my estate my trustees

shall have

a] power to permit any trustees who isa professional or business man to charge and be paid all professional or other fees foe work done by him or his firm including work which a trustee not being a professional or busines man could have done personally

b]Power to exercise all the powers of appropiation  and other incidental power sconferred on personal representatiove  bt statute without the necessity of obtaining any consents.

c] power to trat as income  all income of any part of my estate regardless of the period in which the same shall have accrued and to to disregard all means of apportionment whether legal or equitable between capital and income.

poseidon1

piggy said:

Hi poseidon hope this helps. I think this is the wording which will throw more light on the subject.

Subject to the provisions of the next clause, I give the rest of my estate both real and personal whatsoever an wherever situate including any ready money subject to and after the payment of my debts,funeral and testamentary expenses[the trust fund] to my trustees to divide as follows

d]25% to my son Nicholas -------- [ the beneficiary] Aforsaid subject to clause 8 below

 if my son Nicholas------- survives me the following trust powers and provisions  shall apply, in relation to the share of the trust fund to which[but not for this clause] the clause would be are becomes entitled to absoluely under the proceeding cause and the property  which currently represents it[the beneficiaries share.

My trustees at any time or times during the period of 125 years from my death [that being the perpetuity period applicable to this clause]

i]by deed irrovocable or revocable appoint all appoint that all or any parts of the income or capital of the beneficiarys share shall be held on such trusts[including discretionary and protective ] ones in favour or fot the benefit of all or any one or more of

[1[ The benificiary and

[2] anyone who at that time during that period the spouse or

[whether or not remarried] the former spouse widow or widower of the beneficiary or any child or children of the benificiary

and with subject to such powers  [including  dipositive and administrative ones exercisible by my trustees think fit but I ask them [ without imposing any binding obligation] to take into account the needs of any support required by the beneficiary and

ii] transfer all or any part or parts of of the beneficiarys share to the trustees of any settlement whever established [ whos receipt shall be a good discharge to them ] to be held free from the trusts of this will and on thr trusts and with subject to the powers of settlement but only of those trust powers of that settlement but only if those trust powers and provisions are such that [ at the time of the transfer ] they could themselves created under [i] above

b] my trusteesmat by deed or deeds [and so to bind their successors] wholly or partially release or restrict the powers given the by this claus

In addition to the general law and in the administeration of my estate my trustees

shall have

a] power to permit any trustees who isa professional or business man to charge and be paid all professional or other fees foe work done by him or his firm including work which a trustee not being a professional or busines man could have done personally

b]Power to exercise all the powers of appropiation  and other incidental power sconferred on personal representatiove  bt statute without the necessity of obtaining any consents.

c] power to trat as income  all income of any part of my estate regardless of the period in which the same shall have accrued and to to disregard all means of apportionment whether legal or equitable between capital and income.

Hmm, I now see the difficulties you have experienced in understanding the nature of the trusts you have been tasked to administer.

The clauses quoted are particularly turgid and an example of trust drafting which is considered bad form by modern draftsmen. 

From what I can determine some form of trust was intended at death ( to potentially last up to 125 years), but very unhelpfully for you the decision as to what type of trust was left to the trustees to decide and for you to formalise the type of trust by creating a 'deed of appointment' setting out the precise terms of such trust.

This device was clearly inserted by the original  trust draftsman to force the trustees back to the solicitor firm for advice as to most suitable trust format for the 25% share for your brother, and then for them ( the solicitors ) to create the trust deed ( of appointment) giving effect to that trust. 

Strictly speaking your decision to simply distribute your brother's share of the cash to him free of any  trust restraints should have been achieved by a suitably drafted deed of appointment. Am I to assume therefore, that after you obtained the grant of probate, you did not return to the firm that drafted the will for advice on how to properly deal with your brother's 25% share?

Be that as it may, I would be inclined to treat what you did with the 25% cash share as 'water under the bridge'.

I say this, on the basis  that since there was a lack of clarity in the Will as to form of trust that should govern your brother's 25% share from outset, those clauses could be considered void for uncertainty. This is on the basis that in the absence of the trustees deciding on a suitable form of trust provision, the Will should have imposed clear 'default' trust provisions that take effect in the absence of deeds of appointment being executed by the trustees. I cannot see such 'default trusts' were provided in the Will from what you cited.

You have not quoted the terms of the Will pertaining to the property, but I can only hope those trust terms are considerably clearer than the clauses you cited for the 25% cash share.
 Whoever professionally assists you with HMRC trust registration will need to clearly explain the nature of the trust attached to the property, based on their understanding of the Will in that regard.

I can only sympathise with the problem your mother has unwittingly burdened you with, due to the seemingly poorly drafted trusts. She was not to know that her choice of solicitor was ill considered based on what they eventually produced.

piggy

Poseidon 1 thanks again for your detailed reply and thanks for appreciating the dilemma im in. No i did not go back to the solicitors to discuss the deed of appointment as I was ignorant of the need to do this. I have an appointment next week with a trust specialist accountant.I just hope it isn't going to cost the earth, but judging by your comments, this is a difficult one and a higher degree of difficulty normally means the higher the cost to sort it out.

The one thing annoying  to me though, is the fact that i could also be fined for not registering the trust beforehand. 

 The trust was first formed in 2016 when there was no need to register it.  The authorities changed the law in 2020. I only discovered the need to register it a few weeks ago, after talking to a friend of mine, who alerted me to it. How the authorities can expect an average Joe like me and others to be aware of it is beyond me.I believe HMRC should of made this retrospective prior to 2020 which would have this a lot fairer to people in my position. This could end up costing me thousands, which I have not got. I guess i will just have to hope for the best and see what happens.

poseidon1

piggy said:

Poseidon 1 thanks again for your detailed reply and thanks for appreciating the dilemma im in. No i did not go back to the solicitors to discuss the deed of appointment as I was ignorant of the need to do this. I have an appointment next week with a trust specialist accountant.I just hope it isn't going to cost the earth, but judging by your comments, this is a difficult one and a higher degree of difficulty normally means the higher the cost to sort it out.

The one thing annoying  to me though, is the fact that i could also be fined for not registering the trust beforehand. 

 The trust was first formed in 2016 when there was no need to register it.  The authorities changed the law in 2020. I only discovered the need to register it a few weeks ago, after talking to a friend of mine, who alerted me to it. How the authorities can expect an average Joe like me and others to be aware of it is beyond me.I believe HMRC should of made this retrospective prior to 2020 which would have this a lot fairer to people in my position. This could end up costing me thousands, which I have not got. I guess i will just have to hope for the best and see what happens.

Sadly, since your trust had no need to submit annual self assessment tax returns ( no taxable income or gains), you were not on HMRC's radar to advise you direct. 

 Neither did you feel you had need of professional trust advice over the years, so that avenue to inform you of the requirement was not open to you.

On the plus side, I have no doubt that there are probably thousands of others with similar property related trusts who are also  unaware of the registration requirement, so not withstanding the published penalty for non compliance, I am sure the Accountant should be able to make a convincing plea of mitigation on your behalf to avoid the penalty being imposed.