Life Interest Will Trust - IHT on beneficiary death - who is fined for late payment

DippySkippy

My understanding is that when the Trust beneficiary dies the Trust assets are treated as part of their estate with IHT due on the total amount and their NRB is allocated in proportion between Trust and other assets.

But who pays the IHT and who is liable for late payment penalties?
E.g. if Trust was fully invested in a property at death then do the Trustees have to pay their proportion of IHT within the 6 months (probably not enough time to sell) - if not then who gets fined - the estate Executors or the Trustees?

Keep_pedalling

The executors of the deceased beneficiary are responsible for paying any IHT that may be due. What part of the estate it comes from depends on the terms of the will if there was one.

Unless this is a hypothetical question can you add some specifics?

poseidon1

DippySkippy said:

My understanding is that when the Trust beneficiary dies the Trust assets are treated as part of their estate with IHT due on the total amount and their NRB is allocated in proportion between Trust and other assets.

But who pays the IHT and who is liable for late payment penalties?
E.g. if Trust was fully invested in a property at death then do the Trustees have to pay their proportion of IHT within the 6 months (probably not enough time to sell) - if not then who gets fined - the estate Executors or the Trustees?

As indicated by More_complicated_than_that, primary IHT liability lies with the trustees, subject to a proportion of  NRBs being applied thereto.  So if liability paid late, any penalty lies with the trustees.

As the trust asset is property, HMRC does permit access to the 10 year instalment plan which allows the trustees to spread the tax over 10 annual instalments.  However even with that there is still the issue of raising the funds for the first instalment. If remaindermen of the trust are identical to beneficiaries of the Residuary estate, than perhaps funds from the estate could be accessed for the instalment. Alternatively perhaps a loan could be secured to pay the instalment, pending eventual sale of the property.

You have outlined one of the problems of holding an illiquid asset in this form of trust when death eventually occurs. On the plus side, if the entire property is in trust, it can be placed on the market immediately after death since it is not affected by probate.

DippySkippy

As indicated by More_complicated_than_that, primary IHT liability lies with the trustees, subject to a proportion of  NRBs being applied thereto.  So if liability paid late, any penalty lies with the trustees.

As the trust asset is property, HMRC does permit access to the 10 year instalment plan which allows the trustees to spread the tax over 10 annual instalments.  However even with that there is still the issue of raising the funds for the first instalment. If remaindermen of the trust are identical to beneficiaries of the Residuary estate, than perhaps funds from the estate could be accessed for the instalment. Alternatively perhaps a loan could be secured to pay the instalment, pending eventual sale of the property.

You have outlined one of the problems of holding an illiquid asset in this form of trust when death eventually occurs. On the plus side, if the entire property is in trust, it can be placed on the market immediately after death since it is not affected by probate.

Useful, in this case the Trust beneficiary & remainderman (both trustees) are unconnected and it will become v acrimonious because of this Trust. I doubt the beneficiary's family will  even bother informing the remainderman and I can see it being months before the remainderman (remaining Trustee) will be notified leaving no time to liquidate the house and pay the IHT bill.  I can see that the Trustees are going to have a big row over how much of the Trust can be spent on house such that enough liquid assets remain for IHT. The Trustees cant even work out how much the IHT is until the executors do their part. Trusts should be banned!

DippySkippy

[Deleted User] said:

DippySkippy said:

My understanding is that when the Trust beneficiary dies the Trust assets are treated as part of their estate with IHT due on the total amount and their NRB is allocated in proportion between Trust and other assets.

That's right in some for some trusts but not all.  I'll assume you have the kind of trust where this is correct.

DippySkippy said:

But who pays the IHT and who is liable for late payment penalties?
E.g. if Trust was fully invested in a property at death then do the Trustees have to pay their proportion of IHT within the 6 months (probably not enough time to sell) - if not then who gets fined - the estate Executors or the Trustees?

With property in a trust, there are four people who are liable - https://www.legislation.gov.uk/ukpga/1984/51/section/200

In simple terms, this is: (a) the trustees, and (b) any who gets their hands on the property or benefits from it after death.

So if the property is still in trust, the trustees.

Fraid that legislation made no sense to me. Makes sense that the Trustees pay the IHT from the Trust but my issue is that the actual IHT that needs paying is dependent upon the NRB proportion allocated to the Trust - this is dependent upon the executors doing there job in a timely manner!

DippySkippy

Keep_pedalling said:

The executors of the deceased beneficiary are responsible for paying any IHT that may be due. What part of the estate it comes from depends on the terms of the will if there was one.

Unless this is a hypothetical question can you add some specifics?

More detail here https://forums.moneysavingexpert.com/discussion/6581631/life-interest-will-trust-iht-on-beneficiary-death-who-is-fined-for-late-payment#latest

Regarding 'what part of the estate' - I thought this was fixed:

1. Trustees pay IHT due on Trust
2. Executors pay IHT due of deceased (beneficiary Life Interest Trust)

 But are the Executors responsible for the entire IHT - and they have to chase Trustees for the Trust component? In this scenario the Executors get fined for late payment and not the Trustees?