Post Death Interest Trust

Archiedextrous56

Good afternoon everyone, I thought I would just continue this thread as it relates to the ongoing timeline of the same topic and would appreciate some thoughts about next steps. The IPDI Trust remains in place after we took advice from a STEP qualified solicitor. The Trust was registered post 2 years of death and a Restriction A placed on property at LR. We are now way past the 2 year period and the Widow has expressed a wish to downsize property but has stated that he does not need the 50% share left in the Trust to fund it. Presumably he will be funding it from elsewhere or getting help from family. The Will obviously gives him a right to downsize and reside at the new property for life. However he wants to terminate the Trust and find a new property himself. What are the tax and legal implications?

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82127559#Comment_82127559

If you are saying the widower is now prepared to walk away entirely from the 50% value of the house he is entitled to occupy under the terms of the trust, then his generosity in doing so will give rise to a potentially exempt transfer for IHT purposes equal to the 50% house value he is giving away.

The implication on is own estate, is that he will have used part of his nil rate band and if he fails to survive the requisite 7 years after the 'gift', then the beneficiaries of his own estate may suffer the consequential IHT on his estate if it is large enough.

There are no other tax implications, so if he is prepared to be that generous that really would be a win win for the remaindermen, at the potential expense ( in the medium term) of the widower's immediate family.

Given as you say he is perfectly entitled to a share of the house proceeds rolled into his proposed downsized property, is he really that generous or is the trust termination he is suggesting based on him getting a share of the 50% proceeds ? If so, on what basis is that share being calculated?

Archiedextrous56

Thank you for those insights Poseidon1, very useful. I need to get some more factual detail but will post back here for comment.

Archiedextrous56

After further discussion, the widower wants to terminate the existing Trust, sell the property as life tennant and take 50% proceeds and then release the other 50% to the late wife's beneficiaries. He will also be using his own savings to supplement funds for the new property. He wants to get a number of estate agent valuations on the existing Trust property to establish the value of the 50% share. The widower has his own children who as things stand, would stand to inherit 50% share on his death.

Hope this makes sense.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82137043#Comment_82137043

Just to be clear he wants to take 50% of the trust share of the house proceeds in addition to retaining his personally owned 50% ie retain 75% of the proceeds?

Archiedextrous56

No, he wants 50% share value of the house for himself and release the other 50% to his late wife’s beneficiaries

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82140217#Comment_82140217

So he keeps the share he already owns outright ( which is his anyway), and giveaway with no strings attached the trust 50% to the beneficiaries who were only entitled to it on his death.

As I said, a very generous gesture by the widower for which he will have to survive 7 years after terminating the trust for his 'gift ' to fall out of his £325k nil rate band allowance.

That is the only potential tax consequence ( on him) that I can see. The remaindermen have no tax exposure at all.

As to the formalities of terminating the trust, you will have to check your mothers Will for any requirement for this termination to occur by deed, otherwise the widower need only direct the conveyancing solicitor to transfer the 50% proceeds to the children concerned, stipulating he is releasing those monies by way of gift.

On 2nd thoughts, best this be done by a formal deed of termination so that there is absolutely no ambiguity of what was intended.

I do recall you mentioning earlier in this thread that the relationship with the widower were not great, so this extreme act of generosity on his part seems a little surprising to me.

Archiedextrous56

As always Poseidon, a very thoughtful and helpful response which is much appreciated. I’ve looked at the Will and can’t read anything about being able to terminate the Trust early by deed.

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/82143140#Comment_82143140

Presumably there is also nothing that says you can’t?

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82143140#Comment_82143140

There maybe no express provision for the termination to be formalised by deed in the will, but I would be inclined for the remainderman who benefit from the termination to push for this and indeed pay for it so that there is proper record of the widower's intentions. Them paying for the deed rather than the widower, would appear reasonable in the circumstances.

I would expect that part of the process of preparing such a deed by the solicitor is that the widower will be told of the implications of him dying within 7 years , in case he does not already know.

This should hopefully suffice to head off any potential blow back from the widower's own beneficiaries should he die within 7 years, and those beneficiaries end up facing a potential unexpected IHT bill due to the previous partial utilisation of his nil rate band by the trust termination.

Worth noting that widower could consider taking out a 7 year level term insurance policy to protect his own estate from the potential IHT that could arise as a result of the trust termination.