Discretionary Trust & Probate

gonefishing

Apologies in advance, this is quite long and complicated (for me anyway).

Our mother died in December 2024 leaving a will which left her entire estate (property, money & possessions) in trust, with my brother and I being trustees and we are now executors.  At the time my father was still alive and he was allowed to remain living in the property (Joint Tenancy had been severed) and my brother and I, as trustees, to pay income from the trust to our father.

30 days later our father died.  His will is a mirror image of our mother's will. There are several wooly clauses in their wills, but essentially the trustees have the discretion to distribute the assets as they see fit.  Beneficiaries are my brother and I and our issue. 

Their wills state that on the passing of their partner, their assets will be held in trust, for the benefit of their children (my brother and I) and their issue, with the legacy to follow bloodline.  So essentailly my brother and I are 50/50 beneficiaries.

Their wills were written quite recently by a firm of Estate Planners, who were originally appointed their executor, with my brother and I in reserve.  In return the Estate Planner was going to charge 1% of the estate.  To cut an incredibly long story short, we had concerns regarding the fitness of the Estate Planner to complete the process, so on the advice of our solictor, we requested Estate Planner stand aside and sign a Deed of Renunciation, leaving my brother and I as excecutors.  Our solicitor dealt with the matter and eventually the Deed was signed.

The value of the Estate including the property is a little under £700K and had there not been a trust involved, we would have been perfectly capable of applying for Probate.  However, I don't have a clue how to deal with the trust, so have instructed the family solicitor, who dealt with the deed of renunciation, to continue to deal with the matter, including the trust and probate application..

The Estate could not be simpler, comprising just the property, a car and a couple of bank accounts. We have supplied bank statements, including accrued interest statements to the solicitor.  As executors we have already determined there are no stocks or shares, no life policies or penison benefits to transfer.  No payments are due from/to the DWP or HMRC in respect of income tax.  We got a probate valuation for possessions and three valuations for the property, all of which have been supplied to our solicitor.  The car has been sold and details of the sale also given to the solicitor.  We have now cleared their property and after disposal expenses, we were only able to achieve about 50% of the original valuation.  The porperty is now listed for sale, details of which have also gone to the solicitor.  We understand that exchange ofcontracts on property is subject to probate having been granted.

Ideally, we'd like to end the trust, but to first give our grown up children some money, which we understand won't then be subject to the 7 year rule?

It is taking our solicitor several weeks to respond to emails and even then he doesn't fully answer  our questions.  We have asked for a cost estimate and a letter of engagement, which we assume he will need us to sign, but to no avail.  Is this normal?

Given the above information, it would be useful to know what processes and forms our solicitor is likely to need to complete and how long it should take him to get to the point when probate can be applied for; ie. once started, how long do the forms take to fill in?  We appreciate that Probate can take several weeks to be granted.

My wife and I applied for probate for my father in law (no trust) and it took us just a few minutes to complete the online application and probate was gratnted about 6 weeks later.  This has already been going on for five months!!

To be honest, if someone were to give us a definitive list of forms to complete, we could probably do it ourselves, but we don't know where to even start, hence the solicitor.

Should we consider changing our solicitor?

Any advice would be gratefully received.

Many Thanks

Keep_pedalling

This sounds more like an immediate post death interest trust rather than a discretionary trust (at least I hope it is) so this should not make the probate / IHT process anymore difficult as your mother’s entire estate will still be subject to spousal exemption.

Can you provide the exact wording (redact any personal info) with regards to the trust. Hopefully the ‘estate planners’ have not created any problems but as there a lot of cowboys out there in this unregulated business. 

poseidon1

gonefishing said:

Apologies in advance, this is quite long and complicated (for me anyway).

Our mother died in December 2024 leaving a will which left her entire estate (property, money & possessions) in trust, with my brother and I being trustees and we are now executors.  At the time my father was still alive and he was allowed to remain living in the property (Joint Tenancy had been severed) and my brother and I, as trustees, to pay income from the trust to our father.

30 days later our father died.  His will is a mirror image of our mother's will. There are several wooly clauses in their wills, but essentially the trustees have the discretion to distribute the assets as they see fit.  Beneficiaries are my brother and I and our issue. 

Their wills state that on the passing of their partner, their assets will be held in trust, for the benefit of their children (my brother and I) and their issue, with the legacy to follow bloodline.  So essentailly my brother and I are 50/50 beneficiaries.

Their wills were written quite recently by a firm of Estate Planners, who were originally appointed their executor, with my brother and I in reserve.  In return the Estate Planner was going to charge 1% of the estate.  To cut an incredibly long story short, we had concerns regarding the fitness of the Estate Planner to complete the process, so on the advice of our solictor, we requested Estate Planner stand aside and sign a Deed of Renunciation, leaving my brother and I as excecutors.  Our solicitor dealt with the matter and eventually the Deed was signed.

The value of the Estate including the property is a little under £700K and had there not been a trust involved, we would have been perfectly capable of applying for Probate.  However, I don't have a clue how to deal with the trust, so have instructed the family solicitor, who dealt with the deed of renunciation, to continue to deal with the matter, including the trust and probate application..

The Estate could not be simpler, comprising just the property, a car and a couple of bank accounts. We have supplied bank statements, including accrued interest statements to the solicitor.  As executors we have already determined there are no stocks or shares, no life policies or penison benefits to transfer.  No payments are due from/to the DWP or HMRC in respect of income tax.  We got a probate valuation for possessions and three valuations for the property, all of which have been supplied to our solicitor.  The car has been sold and details of the sale also given to the solicitor.  We have now cleared their property and after disposal expenses, we were only able to achieve about 50% of the original valuation.  The porperty is now listed for sale, details of which have also gone to the solicitor.  We understand that exchange ofcontracts on property is subject to probate having been granted.

Ideally, we'd like to end the trust, but to first give our grown up children some money, which we understand won't then be subject to the 7 year rule?

It is taking our solicitor several weeks to respond to emails and even then he doesn't fully answer  our questions.  We have asked for a cost estimate and a letter of engagement, which we assume he will need us to sign, but to no avail.  Is this normal?

Given the above information, it would be useful to know what processes and forms our solicitor is likely to need to complete and how long it should take him to get to the point when probate can be applied for; ie. once started, how long do the forms take to fill in?  We appreciate that Probate can take several weeks to be granted.

My wife and I applied for probate for my father in law (no trust) and it took us just a few minutes to complete the online application and probate was gratnted about 6 weeks later.  This has already been going on for five months!!

To be honest, if someone were to give us a definitive list of forms to complete, we could probably do it ourselves, but we don't know where to even start, hence the solicitor.

Should we consider changing our solicitor?

Any advice would be gratefully received.

Many Thanks

Suggest you provide a redacted copy of the trust wording especially the sections you consider to be 'woolly'.

From what you have stated my strong suspicions are, assuming your father retained personal ownership of his share of the house, whatever was supposed to be held in trust for him ultimately ended up being held on discretionary trusts ( on his death) for your family rather than outright gifts to you and your brother without continuing trusts. As for his personal estate, need to see what his will stated in the event his spouse predeceased him. If this also provided for discretionary trusts (rather than out right bequests), you maybe in the unfortunate position that both estates are now comprised in discretionary trusts.

Discretionary trusts are complicated and entirely unsuitable for modest estates, and unfortunately not all solicitors are specifically qualified to deal with them.

Please note if  discretionary trusts do occur for both estates, this may likely deny access to your parent's respective transferable Residence Nil Rate bands ( £175k each).

In addition to providing redacted copies of the trust clauses of both wills, also confirm whether the solicitor now dealing with the estate/trust is STEP qualified.

STEP  is the Society of Trust and Estate Practitioners and represent the upper tier specialists in trust and estate matters. If they are not STEP qualified they may struggle to resolve cessation of the trusts cost/ tax effectively so it may well make sense to find another firm. Link to the STEP directory below - 

https://www.step.org/about-step/public

In passing I would advise that these so called estate planning/ will writing firms  responsible for drafting your parents wills, are an utter menace and your query is not the first time we have observed on this forum the potential negative fallout from their  activities.

gonefishing

Here is a redacted copy of our mother's will.  Our father's will is exactly the same.  Any help will be much appreciated.

gonefishing

Sorry, there follows Page 1

gonefishing

It is entirely likely I have used incorrect terminology - maybe it's not a discretionary trust?  The firm of solicitors we are using is a member of Step and the individual solicitor is a full member.

Keep_pedalling

gonefishing said:

It is entirely likely I have used incorrect terminology - maybe it's not a discretionary trust?  The firm of solicitors we are using is a member of Step and the individual solicitor is a full member.

I am afraid to me it looks horribly like a discretionary trust, but I would wait for some of the members with more knowledge of DTs to comment. 

poseidon1

gonefishing said:

It is entirely likely I have used incorrect terminology - maybe it's not a discretionary trust?  The firm of solicitors we are using is a member of Step and the individual solicitor is a full member.

Sadly, from what I can see these terribly  drafted wills ( expressed as irrevocable ) have the following outcomes:

1) On death of mother, all her assets ( other than her personal chattels) fell into a life interest trust for father.

2) The life interest trust  provisions should constitute an exempt bequest to spouse so no IHT at that point, and completion of IHT 400 required.

3) The life interest trust terminated 30 days later, leaving a non exempt discretionary trust for surviving family, which by its nature used up husband's nil rate band at that point. As mentioned in my previous post your father's residence nil rate band would appear to be disallow because the trusts half share of the house did not pass direct to descendents.  Trustees need to complete form IHT 100 for the change to a discretionary trust following your father's death.

Further problems arise with  Father's will and what happens to his half of the marital assets. If his will is exactly the same as your mother's, then his assets pass straight to a separate  discretionary  trust for the surviving family ( no intermediate exempt gift to spouse due to her predeceasing). 

However his own NRB has already been utilised ( on death) under the terms of your mother's will trust, so the question is can your mother's unused nil rate band be transferred to father to help shelter the 2nd discretionary trust now established under his will? Similar question hovers over her residence nil rate band although that would appear to be disallowed for the same reason as 3) above.

His IHT 400 on death will simultaneously report the cessation of his life interest in mother's trust and   the creation of a new trust for the family under the terms of his own will

I suspect these conundrums have left the solicitors scratching their heads on the best way to present this mess to HMRC. 

Somehow, the original will writing company via these appalling wills, appear to have created a situation where valuable nil rate bands may have been lost, leaving parents' estates subject to potential  IHT liabilities which would have been avoided if the discretionary trust clauses had not been inserted.

The solicitors will needed to review the nature of the advice given by the will writing firm to see if avoidance of IHT was one of the purposes of inserting the discretionary trusts and if so whether the family have a cause of action against  that firm for negligence leading to unnecessary IHT liabilities now arising.

I think, in view of the lack  response from your solicitor so far, a meeting would be a good idea to determine if their analysis of the various problem areas related to nil rate bands, accords with my own. It could well be that they  may consider  issues are sufficiently complex to warrant referral of the matter to a Barrister in Chambers for an opinion.

However, if none of what I have highlighted above has been conveyed to you, it must make sense to ascertain from them sooner rather than later whether despite their STEP qualification, this case leaves them out of their depth, and maybe necessary for you to seek assistance elsewhere.

Please note the clock is ticking.  As well any  IHT payable 6 months after death,  you also  have only two years from the date of death of each parents to avoid the full complexity of discretionary trust taxation and accounting coming into force for both trusts. There are special rules for terminating discretionary trusts in these circumstances which avoid trust IHT exit charges that can arise in addition to the IHT entry charges when the trusts were established (Section 144 IHTA 1984 ) - see link below to an explanatory article 

https://ts-p.co.uk/insights/trust-in-the-nrb/#:~:text=Under IHTA 1984, s 144 the termination,so there can be no exit charge.&text=Once all taxes have been settled and,in favour of the children and/or grandchildren.

gonefishing

Many thanks.  I am wondering whether these complexities are the reason that our solicitors are dragging their heels? 

Keep_pedalling

I wonder, considering that the deaths happed so close together and within the last two years, if a deed of variation could undo this mess. 

gonefishing

At the same time the Estate Planning company also setup replacement LPAs for our parents.  They already had both health and property LPAs with my brother and I as joint and several attorneys, which given our parents age 88 at the time, with mum awaiting a dementia diagnosis seemed sensible.

The planning company advised them to be each others attorney, with myself and my brother being joint replacement attorneys (not several).  Stupidly, we didn't object and agreed to the changes.  It then transpired the LPA dates were wrong, so they needed to be resigned.  This is just ine example of the rookie errors this company is capable of.

We are suspicious that all they really wanted to do was get themselves in the wills as executor for 1% of the estate.  As we were only replacement attorneys, I'm not sure we could have done anything.

When we questioned the logic of what they were doing they just said it was private and confidential.

Finally, we now find that when they sent the joint tenancy severance document to the Land Registry they sent them in unsigned and the document was rejected.  Unfortunately, by the time this came to light, our parents were ill and died before signing the LR form.  There is therefore a pending application at the LR, which the Estate Agent found when we instructed them to offer the property for sale.

Our solicitor is confident the joint tenancy was severed, it's just not registered at the LR.  They don't seem concerned, but I'm now wondering if this is something else we should be worried about?