Will Life Interest In Possession Trust

Keep_pedalling

Is the beneficiary of the trust related to the deceased and if so what was their relationship?

DippySkippy

poseidon1 said:

*  You will be professionally advised that unless the Will Trust document directs you to favour the interests of the beneficiary entitled to capital over that of the income beneficiary, your proposed gross income yield of between 1.5% to 2% is likely to be considered detrimental to the income beneficiary.  In this regard, I refer you to page 3 of the standard Life IPS document. If you select Option 1 this leaves the investment adviser to determine the income/capital growth balancing act.

* As to trust accountancy/ tax compliance fees, the accountant will reccomend the % split chargeable to the trust income and capital each year. Trust income is distributable after deduction of income fees.

* its not clear to me whether you are now sole trustee of the trust. If so this is far from ideal. If you were to die with no co- trustee in place, your trusteeship would devolve by law on the executors of your personal estate. I am sure they would be less than happy with that additional burden. Give some thought to an additional trustee.

You have a steep learning curve ahead of you. A suitably qualified professional will be invaluable to ensure you discharge your trustee obligations appropriately. 

@poseidon1 great info again

Though after reading the Standard Life IPS and Farrer link which states 

"Importantly, trustees have a duty to balance the interests of different beneficiaries and to act fairly when making investment decisions which could have different outcomes for beneficiaries with competing interests. Therefore, trustees must have regard to this duty when deciding to what extent they will invest for income returns or capital growth in circumstances where the beneficiaries entitled to income and capital respectively are different."

The IPS example has different options. I think the problem in this case will be that the Trust beneficiary and remainderman are both trustees and will have completely different priorities (I am executor, not a trustee). In this I'd have thought that Standard Life D1 option1 would be most applicable - and to maintain indexed linked capital means minimal income.

I assume it is the Trustees who have to agree on the IPS - good luck with that!. How can disagreements be resolved as I believe all Trustees must agree?  

Note - the Will states no investment strategy. There is an expression of wishes but my understanding is that this is not binding.

Will have to find a STEP for advice ref the Trust. Would be so much easier if people didnt stick them in their Will as this has the potential for a lifetime of bickering between the Trustees.

DippySkippy

Keep_pedalling said:

Is the beneficiary of the trust related to the deceased and if so what was their relationship?

Nope - common law partner, not a dependant

Keep_pedalling

DippySkippy said:

Keep_pedalling said:

Is the beneficiary of the trust related to the deceased and if so what was their relationship?

Nope - common law partner, not a dependant

Is she aware that although she has no right to the capital it still counts towards her estate for IHT purposes? 

poseidon1

DippySkippy said:

poseidon1 said:

*  You will be professionally advised that unless the Will Trust document directs you to favour the interests of the beneficiary entitled to capital over that of the income beneficiary, your proposed gross income yield of between 1.5% to 2% is likely to be considered detrimental to the income beneficiary.  In this regard, I refer you to page 3 of the standard Life IPS document. If you select Option 1 this leaves the investment adviser to determine the income/capital growth balancing act.

* As to trust accountancy/ tax compliance fees, the accountant will reccomend the % split chargeable to the trust income and capital each year. Trust income is distributable after deduction of income fees.

* its not clear to me whether you are now sole trustee of the trust. If so this is far from ideal. If you were to die with no co- trustee in place, your trusteeship would devolve by law on the executors of your personal estate. I am sure they would be less than happy with that additional burden. Give some thought to an additional trustee.

You have a steep learning curve ahead of you. A suitably qualified professional will be invaluable to ensure you discharge your trustee obligations appropriately. 

@poseidon1 great info again

Though after reading the Standard Life IPS and Farrer link which states 

"Importantly, trustees have a duty to balance the interests of different beneficiaries and to act fairly when making investment decisions which could have different outcomes for beneficiaries with competing interests. Therefore, trustees must have regard to this duty when deciding to what extent they will invest for income returns or capital growth in circumstances where the beneficiaries entitled to income and capital respectively are different."

The IPS example has different options. I think the problem in this case will be that the Trust beneficiary and remainderman are both trustees and will have completely different priorities (I am executor, not a trustee). In this I'd have thought that Standard Life D1 option1 would be most applicable - and to maintain indexed linked capital means minimal income.

I assume it is the Trustees who have to agree on the IPS - good luck with that!. How can disagreements be resolved as I believe all Trustees must agree?  

Note - the Will states no investment strategy. There is an expression of wishes but my understanding is that this is not binding.

Will have to find a STEP for advice ref the Trust. Would be so much easier if people didnt stick them in their Will as this has the potential for a lifetime of bickering between the Trustees.

Life tenant and remaindermen are trustees?  If this were a parent/child scenario I would ordinarily say this should be no problem.

However as you say,  in this particular circumstance it sounds like a recipe for constant conflict between the parties. Really have to wonder what possessed the testator to have put her ex partner and her child in this potentially adversarial position.  It was bad enough she and her ex chose not to marry  thereby eroding her estate by way of IHT  on her death. 

Thankfully from  your perspective your executor duties terminate on final administration of the deceased estate. Best you can do is introduce a STEP qualified adviser at an early stage whose role may prove to be that of a referee, more than anything else. 

I know you have already explored  the possibility of breaking the trust, but arguably you may  not have been armed with sufficient information, such as the diminution of the life tenant 's personal nil rate band on death.  There are also the ongoing costs of investment management, accountancy fees and legal advice which will make inroads on the trust fund over the years to the detriment of both beneficiaries which is likely not fully appreciated by the life tenant. 

Perhaps  with this additional information and insight into the future  complexities the trustees will face, you and an appropriate adviser could revisit with the life tenant the possibility of breaking the trust (for a realistic capital sum) and parties go their separate ways?  What is the Life tenant's age by the way? Does this trust have potential to last a couple of decades?

DippySkippy

poseidon1 said:

Life tenant and remaindermen are trustees?  If this were a parent/child scenario I would ordinarily say this should be no problem.

However as you say,  in this particular circumstance it sounds like a recipe for constant conflict between the parties. Really have to wonder what possessed the testator to have put her ex partner and her child in this potentially adversarial position.  It was bad enough she and her ex chose not to marry  thereby eroding her estate by way of IHT  on her death. 

Thankfully from  your perspective your executor duties terminate on final administration of the deceased estate. Best you can do is introduce a STEP qualified adviser at an early stage whose role may prove to be that of a referee, more than anything else. 

I know you have already explored  the possibility of breaking the trust, but arguably you may  not have been armed with sufficient information, such as the diminution of the life tenant 's personal nil rate band on death.  There are also the ongoing costs of investment management, accountancy fees and legal advice which will make inroads on the trust fund over the years to the detriment of both beneficiaries which is likely not fully appreciated by the life tenant. 

Perhaps  with this additional information and insight into the future  complexities the trustees will face, you and an appropriate adviser could revisit with the life tenant the possibility of breaking the trust (for a realistic capital sum) and parties go their separate ways?  What is the Life tenant's age by the way? Does this trust have potential to last a couple of decades?

I do wonder why testator was ever advised to produce such a Will - I cannot believe the consequences and expense were properly explained and wonder if that is ground enough to contest as a last resort? I note that the SRA principles for Will writing states

Principle 7 of the Principles requires you to act in the best interests of each client.

If deed of variance cannot be agreed. I am permitted as an executor to ask for their records of the Will preparation?

You have provided much food for thought, thank you - I will attempt to broach a deal to remove Trust, though I worry the Beneficiary has unrealistic expectations for the sum and underestimates the hassle and overheads of a Trust which may run for 15+ years.  This is one reason I am keen to understand the expected Trust yield & overheads.

Anther possible point of contention is that the Beneficiary could ask Trust to purchase property on their behalf (that option is in the Will). But I am wondering given the requirement for investment diversity what % of Trust could be used for this purpose - presumably not more than 50%? Even if a property were purchased then I am assuming the Beneficiary is effectively a tenant of the Trust and would have to seek permission for any property changes (e.g. bathroom/kitchen changes)?

DippySkippy

Keep_pedalling said:

DippySkippy said:

Keep_pedalling said:

Is the beneficiary of the trust related to the deceased and if so what was their relationship?

Nope - common law partner, not a dependant

Is she aware that although she has no right to the capital it still counts towards her estate for IHT purposes? 

Aware of no right to capital, probably doesnt understand the IHT implication

mattojgb

I think I would consult with both beneficiaries regarding what sort of lump sum they would accept to break the trust and agree a deed of variation. It certainly seems to be in both their interests, but the life tenant may want more than a simple lump sum equivalent whilst the remainderman may accept less for receiving it early. Depends on their ages and financial situations.

DippySkippy

mattojgb said:

I think I would consult with both beneficiaries regarding what sort of lump sum they would accept to break the trust and agree a deed of variation. It certainly seems to be in both their interests, but the life tenant may want more than a simple lump sum equivalent whilst the remainderman may accept less for receiving it early. Depends on their ages and financial situations.

Thanks - this has been tried and neither can agree so stuck with a Trust that will screw both parties