Discretionary Trust Will - how to wind up and do we need to do a DOV

Icecream72

My dad passed away this summer so my mum, brother and I as executors are sorting out his estate.

As he had a discretionary trust will we are wondering whether we need to get further advice from a solicitor to action certain things or whether having a solicitor involved is even necessary. We would value any advice here so we’re more informed if we do have to enlist a solicitors help. 

The will was written in 2004 and leaves everything to my mum (‘absolutely’ if she survives him) or when she were to pass then to my brother and I. 

His estate was just below the NRB so no IHT to pay. The house is owned as Tenants in Common and his share is under the RNRB allowance that each person has.

Questions are:

My mother is financially comfortable herself and in good health and is keen to pass on his estate to the two of us now rather than on her passing. Is this just a case of doing a simple deed of variation within 2 years of his passing? Presume we don’t need a solicitor to write a DOV for us?

We want the house to be fully in mums name as they were previously Tenants in Common so do we need to do anything around this now to state that the property is in mums name only? Also are there any implications of the RNRB and the trust? If the house doesn’t go into the trust do we assume that we will claim dad’s RNRB for mum alongside hers at some point in the future?

None of us want the bother of having an active trust so we would just like to close it. Do we need to do anything formally with a solicitor for this or can we just write and sign our own formal deed of appointment to say we have all agreed that the trust should be wound up? It has obviously never been registered in any way with HMRC as it has only just come into effect on dads death.

If we have to go to a solicitor to sort the above it’s fine but as we are all in different parts of the country and my brother and I work full time it’s difficult to coordinate a convenient time for us all so any advice would be helpful.

Keep_pedalling

This is confusing, your thread is titled discretionary trust will, but you say everything has been left to your mother absolutely, so much more detail needed. If your father was a beneficiary of a discresionary trust then that will mot be covered by his will.

Anything a spouse inherits is covered by spousal exemption so a DoV would be a silly thing to do as it could lead to an unnecessary IHT liability, far better for her to make gifts from her inheritance as this has a chance of falling outside her estate if she survives 7 years. Providing she has ample assets to take care of her long term needs and is not thinking of giving her home away then gifting is a good option if her estate is already in IHT territory. 

Icecream72

Thank you for your response.
My father wasn’t  a beneficiary of a discretionary trust. There was no active trust before he died. As we understood it he had a discretionary will which on his death became a discretionary trust and within that a discretionary fund which the beneficiaries could use to draw money from and that fund (as part of the trust) could run for another 80 years if the trustees saw fit to keep it open. The will unfortunately is written in overcomplicated legal language with paragraph long sentences of lots of ‘hereinbefore’ and ‘thereof upon’ statements which make it hard to follow any real logic. Well for us anyway.

In terms of the DoV being silly…again maybe we misunderstood and thought it was a way to redirect part of the estate as mum doesn’t want it. It’s already outside of IHT at this point as his estate was under the NRB allowance so why would it later have a chance of being IHT exempt only if she survives for more than 7 years? If anything were to happen to mum inside of the 7 years we thought the DoV would be the practical thing to do? If its exempt from IHT now and if at the time mum dies (if before 7 years are up) then collectively their assets totalled less than £650k (x 2 NRB allowances) then there wouldnt be any IHT would there?

I think we are best to seek legal advice and for us non-legal speak people they can explain the situation in layman terms.

Keep_pedalling

A deed of variation is useful if you are inherit from a parent and want to pass that inheritance to a child, but it is always pointless if it is to pass an inheritance from a spouse to someone else because of spousal exemption. It might not make any difference in this case because of the size of the estates but for larger estates as well as being pointless it could lead to an increased IHT liability. 

Discretionary trusts are a total pain in the backside and for most estates are a terrible idea so a DoV to undue one of those is probably worthwhile, but you say everything has been left to your mother so where does this trust fit in? 

poseidon1

Icecream72 said:

Thank you for your response.
My father wasn’t  a beneficiary of a discretionary trust. There was no active trust before he died. As we understood it he had a discretionary will which on his death became a discretionary trust and within that a discretionary fund which the beneficiaries could use to draw money from and that fund (as part of the trust) could run for another 80 years if ttrustees saw fit to keep it open. The will unfortunately is written in overcomplicated legal language with paragraph long sentences of lots of ‘hereinbefore’ and ‘thereof upon’ statements which make it hard to follow any real logic. Well for us anyway.

In terms of the DoV being silly…again maybe we misunderstood and thought it was a way to redirect part of the estate as mum doesn’t want it. It’s already outside of IHT at this point as his estate was under the NRB allowance so why would it later have a chance of being IHT exempt only if she survives for more than 7 years? If anything were to happen to mum inside of the 7 years we thought the DoV would be the practical thing to do? If its exempt from IHT now and if at the time mum dies (if before 7 years are up) then collectively their assets totalled less than £650k (x 2 NRB allowances) then there wouldnt be any IHT would there?

I think we are best to seek legal advice and for us non-legal speak people they can explain the situation in layman terms.

You are free to post on this forum (redacted) wording of the will if you have difficulty understanding what it purports to say.  Understanding the terms of Will Trusts written in archaic legalese was part of my day job pre retirement.

At the moment you have made what appears to be two conflicting statements ie that your mother inherited 'absolutely ' from your father, whilst at the same time a discretionary trust was imposed on the same assets.

It is possible there is a kernal of truth in both statements,  in that personal assets and cash (personalty) was inherited by your mother ( absolutely) whilst your father's half share of the house passed into a discretionary trust. 

Worth pointing out that since the will was prepared in 2004 this preceded the transferable nil rate band as well as the residence nil rate band.

This type of will drafting was therefore reasonably common at the time to ensure the first spouses' NRB was utilised rather than lost for ever on first death. Its a shame however that your father did not consider changing his will after the advent of the transferable NRB in October  2009 .

If after due examination a discretionary trust is indeed found to be in place, a deed of variation to get rid of it is theoretically possible under Saunders v Vautier legal principles.

However, if the discretionary class of beneficiaries include minors and unborn children (not unusual), then a DOV cannot be implemented without the intervention of the Chancery Court who will consider the position of minors and unborns who are legally and factually unable to be parties to the DOV.

Icecream72

Unfortunately by the time by mum showed us the wills my dad already had dementia so couldn’t update it. They initially had the below as mirror wills both done in 2004. Mum had hers changed a few years ago to a much more straightforward will leaving everything to her children. 

In regards to dads will all direct descendants are 21+ and there are no specifics to minors etc as far as we can see.

The below will will make sense to a legal professional but to us and with the complicated rules of trusts and RNRB etc we are getting confused with it all. What we don’t want is to go to a solictors and be talked into things which aren’t necessarily needed but we are happy to pay for the professional advise, we just want to have a better understanding of it all first. 

If this is now an actual trust after death then we would rather wind it up if possible. If we pass everything to mum then that is fine, it’s only that she is keen to not hold onto all of my dad’s estate and therefore is considering the DoV. If it’s easier then I guess she could gift to us from her within the IHT allowance.

Thank you both @poseidon1 and @Keeppedalling for your comments thus far. 

I GIVE AND DEVISE free of Inheritance Tax and any other fiscal

impositions to my Trustees the Nil-Rate sum upon trust to invest the

same in any investments hereby authorised with power at their discretion

to vary or transpose such investment for or into others of a like nature

and TO HOLD such investments and any money for the time being un-

invested (hereinafter called "the Discretionary Fund) and the income

thereof upon the trust and with and subject to the powers and provisions

hereinafter declared

(a)

FOR THE PURPOSE of this Clause of this my Will the following

expressions shall have the following meanings:

(i)

"THE DISTRIBUTION DAY" shall mean the day upon which shall

expire the period of eighty years from the date of my death

which period of eighty years shall be the perpetuity period

applicable thereto

"THE BENEFICIARIES" shall mean my

said Wife….

and my said Sons….

and remainder issue whether living

at the date of my death or born before the Distribution Day but

no person may become a beneficiary by reason of any invent

occurring after the Distribution Day

"NIL-RATE" SUM shall mean the maximum amount of cash or

other assets which can be given on the trust of this Clause

without any Inheritance Tax becoming payable in respect of the transfer or value which I am deemed to make immediately before

my death

MY TRUSTEES shall stand possessed of the Discretionary Fund and the income there from upon such trusts for the benefit of the

beneficiaries or any one or more than them to the exclusion of the

other or others in such shares and at such ago or time or

respective ages or times and generally upon and subject to such

terms and conditions whether of the beneficial or administrative

nature and my Trustees shall from time to time by Deed or Deeds irrevocable or revocable executed before the Distribution Day but

without infringing the rule against perpetuities a point PROVIDED

(d)

ALWAYS that no power of revocation reserved to my Trustees by

any appointment shall be capable of being exercised after the Distribution Day

SUBJECT AS AFORESAID and until the Distribution Day my

Trustees shall stand possessed of the Discretionary Fund upon trust to pay or apply the income of the Discretionary Fund with power in their absolute discretion from time to time to pay or

apply the whole or any part or parts of the capital of the Discretionary Fund to or for the benefit of all or such one or more

of the beneficiaries for the time being living in such shares if

more than one and such manner (including by way of loan with or

without security and at interest or interest free) as my Trustees

shall from time to time in their absolute discretion shall think fit

PROVIDED THAT my Trustees shall also power notwithstanding

the foregoing during the period of twenty one years from my death if in their absolute discretion they think fit from time to

time to accumulate the whole or any part of the income of the

Discretionary Fund by investing the same and the resulting income

thereof as an accretion to the capital of the Discretionary Fund

SUBJECT TO ANY and every exercise of the powers hereinbefore conferred upon my Trustees by this Clause on the

Distribution Day my Trustees shall stand possessed of the Discretionary Fund and the income thereof upon trust for such the beneficiaries as are then living and if more than one in equal

shares

(e)

MY TRUSTEES shall have power in addition to the powers of

management conferred by Law upon Trustees holding land upon

trust for sale to sell purchase exchange convey lease mortgage

charge agree to let license and otherwise conduct the management

of any land held subject to the trust hereof as if my Trustees

were the absolute owner of such land solely entitled

(f)

ANY of the Trustees may join in exercising any of the powers

contained in this clause of this my Will notwithstanding the he or

she is one of the beneficiaries and will or may benefit from such

exercise

I DECLARE but without imposing the binding trusts or legal

obligation on them that it is my wish that my Trustees shall have

regard to my said Wife during his lifetime as the beneficiary

having the greatest claim on the capital and income of the

Discretionary Fund

I DEVISE AND BEQUEATH the residue to my Estate both real and

personal of whatsoever kind and wheresoever situate of or to which I

shall be seized possessed or entitled or which I shall have power to

dispose of by my Will at my decease unto my Trustees upon trust to sell call and convert the same into money with power to postpone the sale

calling in and conversion thereof for such period as they shall think fit

without being liable for loss upon trust to pay thereout my just debts funeral and testamentary expenses and THEN TO HOLD the residue

upon trust for my said Wife

absolutely

PROVIDED THAT she shall survive me for a period of thirty days and

PROVIDED FURTHER that if my said Wife shall have predeceased me or

shall have not survived me for the said period THEN I DEVISE AND BEQUEATH the residue of my Estate as aforesaid unto my said Sons

or survivor of them and if

more than one equally between them and PROVIDED FURTHER that if

any of them my said Sons shall have predeceased

me leaving issue living at my death such issue as and when they attain the

age of twenty one years shall take and if more than one equally between

them the share of my Estate which such deceased Sons would have taken had he survived me

5 MY TRUSTEES shall have the following powers in addition to the powers

under the general law:

(a) To raise at any time and from time to time the whole or any part

of the vested or contingent share or shares in my Residuary

Estate of any beneficiary of mine and pay the same to or apply the

same for the benefit of him or her

(b)

To invest trust money and transpose investments with the same

unrestricted freedom in their choice of investment as if they were absolute owners beneficially entitled and to purchase retain

or improve a freehold or leasehold house or other dwelling to be

held by them on trust for sale (with power to postpone sale) for use as a residence by the person or persons to whom or for whose

benefit the income of the trust fund is for the time being payable

or applicable

to insure against loss or damage by fire or from any other risk any

property for the time being comprised in my Residuary Estate to

any amount and even though a person may be absolutely entitled to

the property and to pay the insurance premiums out of the income

or capital of the trust fund or the property itself and any money received by my trustees under such a policy shall be treated as if

it were the proceeds

Whenever my Trustees have an obligation or discretion under the

provisions of this Will or under the general law to pay or apply

income or capital to an infant or for his or her benefit to

discharge that obligation or exercise that discretion if they so

desire by paying the same to any parent or guardian of the infant or to the infant himself if of the age of 16 years and their

respective receipts shall be a good discharge to my trustees who shall not be obliged to see how it is used

To employ any of their number who is a Solicitor Accountant or

other professional or businessman and any person so employed may charge and be paid (in priority to all other dispositions herein and free of Inheritance Tax) all usual professional and other fees for work done by him or his firm in connection with proving my Will and carrying out its trusts including work outside the ordinary course of his profession or business and work which he could or

should have done personally had he not been a professional or businessman

To treat as income all the income from any part of my estate

whatever the period in respect of which it shall accrue and to

disregard the Apportionment Acts 1834 and 1870 and any Act

replacing them and the rules in Howe v Darmouth and Allhusen v

Whitehall in all their branches

silvercar

Keep_pedalling said:

This is confusing, your thread is titled discretionary trust will, but you say everything has been left to your mother absolutely, so much more detail needed. If your father was a beneficiary of a discresionary trust then that will mot be covered by his will.

Anything a spouse inherits is covered by spousal exemption so a DoV would be a silly thing to do as it could lead to an unnecessary IHT liability, far better for her to make gifts from her inheritance as this has a chance of falling outside her estate if she survives 7 years. Providing she has ample assets to take care of her long term needs and is not thinking of giving her home away then gifting is a good option if her estate is already in IHT territory. 

I thought  a DoV would divert some of the father's estate to his children and therefore if the mother unfortunately died within 7 years it would mean that the diverted amount would not be considered in her estate. Whereas if the mother inherited from the father (spousal exemption) and gifted to her children, the gift would be only a PET therefore potentially liable for IHT if she died within 7 years.

Keep_pedalling

silvercar said:

Keep_pedalling said:

This is confusing, your thread is titled discretionary trust will, but you say everything has been left to your mother absolutely, so much more detail needed. If your father was a beneficiary of a discresionary trust then that will mot be covered by his will.

Anything a spouse inherits is covered by spousal exemption so a DoV would be a silly thing to do as it could lead to an unnecessary IHT liability, far better for her to make gifts from her inheritance as this has a chance of falling outside her estate if she survives 7 years. Providing she has ample assets to take care of her long term needs and is not thinking of giving her home away then gifting is a good option if her estate is already in IHT territory. 

I thought  a DoV would divert some of the father's estate to his children and therefore if the mother unfortunately died within 7 years it would mean that the diverted amount would not be considered in her estate. Whereas if the mother inherited from the father (spousal exemption) and gifted to her children, the gift would be only a PET therefore potentially liable for IHT if she died within 7 years.

It won’t be consider as part of her estate but at the same time the transferable NRB will be reduced. Overall the result will be the same as if she simply gifted part of her inheritance. 

Keep_pedalling

So this is a NRB discretionary trust with the residual estate going to your mother. 

My reading of this is that all the beneficiaries of the trusts are adults and that you should be able to undo this with a DoV if all the beneficiaries of the trust agree but Poseidon1 knows lot more about trusts than I do.

If it is possible to get rid of the trust with a DoV then I would do that in favour of your mother, she can then make personal gifts from her inheritance. This would leave her estate with up to £1M in IHT exemptions. 

poseidon1

OK, a very helpful extraction of the key points of your father's will.

As anticipated there is a valid discretionary trust albeit it does not specify the exact assets which are subject to the trust, merely assets equal to the prevailing NRB. 

If your father did not leave cash or other liquid assets equal to the NRB, then inevitably part or all of his share of the house would be the fallback asset for this purpose.

I did mention  the possibility of a Saunders v Vautier DOV to eliminate the trust at inception.

 Unfortunately, and again as anticipated the beneficial class is listed as Wife, Sons and remainder issue ( minor grandchildren)  whether living at date of death or born before Distribution date.

The inclusion of grandchildren ( if minors) but especially the unborns, means a straightforward DOV between surviving wife and sons is hindered by the inclusion of unborn children and likely invokes an expensive application to the Chancery Court to strike out their presumptive discretionary beneficial interests in the trust funds to achieve a legally valid DOV. This issue was examined at length in the following thread.


https://forums.moneysavingexpert.com/discussion/6555421/deed-of-variation-r-removal-of-unborn-beneficiaries-in-a-discretionary-trust?utm_source=community-search&utm_medium=organic-search&utm_term=saunders+v+vautier+poseidon1+


All is not lost however. It is a specific tax characteristic of discretionary trusts that if they are formally terminated ( by deed ) within 2 years of death the exit of assets will be IHT free and negates any complicated reporting of the trust to HMRC. 


Given that you say your father's personal estate was just below the NRB ( including his share of the house?), the question will be whether to advance out of the trust his share of the house, back to your mother or to the sons. Either way, your father's NRB will be lost to your mother when she dies, and if his house share is the only rationale choice of asset for the trust, so to his residence nil rate band.

Another possibility could be to appoint to your mother a life interest in the NRB discretionary trust assets, but this regrettably would not achieve the same IHT outcome compared to a compliant IPDI trust directly set up by your father's will. IPDI trusts preserve both transferable NRBs and RNRBs on death of the surviving spouse, but they must be directly created under the terms of the deceased Will, rather than 'retrofitted' out of a discretionary trust of a Will.

If your mother  at the current time is  left with just her own NRB and RNRB on death ( total £500k), this could dictate passing the father's half share of the house to sons from the trust so as not to squander his NRB.

Plenty of topics for discussion with an appropriately STEP qualified solicitor, but hopefully gives you a useful foundation to consider the most appropriate cost/ tax effective course of action.