Help Appreciated - IPDI , Trusts and distribution of previous legacies

NoPlacetoHide

I thought I could sort out my dad’s estate but probate and IHT and other anomalies are  becoming confusing the more I read and find on the web.

Dad died at the beginning of September and I'm one of three executors who are the three main beneficiaries. My sister wanted to get legal help but I persuaded her to do it ourselves my other brother is happy for the two of us to sort this out without him.

I think we have most things covered but am unsure of a couple of things mainly IPD's and monies held in trusts.  The will states that my father’s share of the property is given to his trustees on trust to allow my mam to live in the property or until she wishes to leave. Does this mean an IPDI has come into effect?  Mam cannot live on her own (dementia) so we have had to put her in a care home we are therefore planning on selling the house whereby mam gets a half and the three of us share the remainder. Will I need to inform HMRC?

The house had been valued at 350K and I put dads 175k on the probate but is this right as I’ve read this may be covered by spousal exemption? If that’s the case does that mean when we sell it would form part of my mam’s assets and the 175k or £350K would no longer qualify for the additional allowance. This would potentially trigger an IHT liability if mam passed in the next few years which is highly probable.

The remaining assets belong to the trustees my mam gets nothing unless shared assets and chattels are sold as she would be entitled to 50% Mam is financially independent and if needed her share of the house will go towards her care costs.

My mam and dad also had three joint trusts, Mams financial advisor said to leave all of this off probate and that there was no Inheritance Tax liability however the most recent trust was a loan plan taken out in Nov 22 for 100K. I thought we should include dads share for both probate and IHT. The other two trusts were discretionary joint trusts set up in 2015 and 2006. I assume these are outside the estate now.

 Looking at Dads bank statements between Aug18 to June 19 (so some within the seven years) he made some substantial payments to family and relations in connection to My late Aunties Will. In total about 100K was distributed out. I’m pretty sure this money had been left to my Mam & Dad but they decided to share this out as they were both executors. No deed of variation exists for this. Again would I need to add this to the probate and include as gifts in the IHT calculation and if so do I use the full amount or 50% Also on examining his bank statements are three significant  cash withdrawals totalling 13.5K that I cannot work out what they were used for. I probably should include these as well  

 

 

Many Thanks

RAS

You needed to separate out "trustees" as you have at least two different sorts.

The executors of any will always hold the assets "in trust" from acquisition to distribution. They don't own any but are on trust to deal with them in line with the will, so are referred to as trustees. 

If the will creates an IPDI trust then the main beneficiary and at least one other become trustees. These will be the people who sell the property with mum's attorney signing on her behalf. These could be the same individual(s) but can have two different legal roles.

If you can see three large payments, ask the bank to whom those were made.

We assume that someone holds a valid LPA for mum? Who?

Also you need to read dad's will carefully. When the IPDI trust was created in the will, it may well explain what happens to the capital if the house is sold? So mum may continue to benefit from any income generated but the capital remains for their children? Can you quote the section, removing personal names?

I'd suggest you order a copy of Auntie's will now rather than hunting. Today that'll cost you £1.50. Next week that goes up to £16.

You'll need to provide much more detail about the other trusts. Some can be nightmares, other benign. You aren't allowed to post links or images until you have 10 posts but a brief description of each would help. I'd suggest one per post?

I'll copy in @poseidon1 as they have decades of relevant experience. There've been a lot of changes to rules since 2006.

When you get enough posts, can you post each one separately minus identifying information and hopefully some of those here can help.

NoPlacetoHide

Hi thanks for the quick response the salient points in the will are -

Dad appointed his three children as executors and trustees. He then “Gave his estate to trustees on trust for sale with powers to :-

a – sell or postpone the sale

b- hold in accordance with these provisions

I give my share of the property to my trustees on trust to allow my wife to occupy the same for the duration of her lifetime or until such time she no longer wishes to reside in the property free of any rent provided that –

They are the sole occupant

They are responsible for all taxes, outgoings upkeep and maintenance including insurance.

My tustees may (if requested by occupant) at their discretion sell property and apply some or all the net proceeds of sale to purchase another property …as a residence for the occupant

Following tenancy conclusion directed that trustees divide my share in accordance with the will.

I give my residuary estate to be divided equally between my three children

All trustees have following powers

Standard provisions of the society of trust and estate practioners

I direct that any section 33 of wills act should not apply to any gift

 

I have copy of my Aunties Will all beneficiaries were paid more than stated on the will and also some additional payments were made to newer family members. This came out of my mam and dads share as they were left the majority of it. In total £65k was paid out of dads account back in Nov 18. Mam and Dad didn’t have joint accounts but I can see monies being transferred between each of them. 

 

I hold an active POA for my mam

I will have to dig out what paperwork I can find for the trusts and will post back

Thanks again for assisting.

poseidon1

From what you shared here, you  likely need professional assistance  in untangling what is necessary for the IHT reporting.

In the meantime some observations.

Typically the IPDI trust of your father's half share of the house would  technically be an IHT exempt transfer to your mother, despite the fact she was incapable of occupying the home by reason of dementia. Unusually, the trust only provides for a replacement home and makes no provision for a continuing trust to produce income from any house sale proceeds for your mum's lifetime benefit.

Therefore from the  Will wording you have shared since there is no requirement to benefit your mother after her 'tenancy' has terminated, there is the question that on the facts  you relate did an enforceable trust  for your mother actually exist at the point of your father's death? Much will turn on exactly  when you put your mother into a care home. If this was after your father's death and she occupied the property at that point, then the trust momentarily exsisted and later extinguished when she was moved out.

The Loan Trust.  You are correct to be skeptical of the blasé  FA advice to exclude this from IHT form. I assume what your father created was a life company  Investment bond set up in a trust whereby a (small?) percentage of the £100k was gifted outright into trust, whilst the remainder was an outstanding loan due back to your father.

I assume your father had been taking small withdrawals since 2022 to reduce the loan, but the bulk of his loan remains outstanding, therefore this is definitely  part of his estate on death. As for the percentage gifted to the trust, at best this was a failed potential exempt transfer ( PET), so that gift erodes your father's NRB.

The earlier discretionary trusts - You do not mention how much was gifted in 2006 and 2015 to theses entities which may well be  Investment Bond related again.  However you should be aware that under certain circumstances the gift into the 2015 discretionary trust can remain potentially taxable on the deceased up to 14 years after the gift is made.  Only a specialist trust advisor (solicitor or accountant), can determine if this is the case here. The financial advisor who sold these trust 'solutions'  will likely be of no use in this regard.

Your Aunt's estate - you will need to quantify how much your father actually inherited as beneficiary. As suggested by @Ras get a copy of the will ASAP. The fact that your mother and father were joint executors of Aunt's will did not  ( by itself) make your mother a joint beneficiary. In the absence of a DOV, and if your father was sole beneficiary on record, its possible the entire £100k gifted was a failed PET from him.

Please note with regard to failed PETs, these erode a deceased's nil rate band on death so on what you have outlined so far, he definitely did not have the full £325k available when he died.

All in all with so many different moving parts to your father's past financial estate planning to navigate, I really can't see you being able to do so without expert assistance from a STEP qualified solicitor.

Despite this forum's enthusiasm for DIY probate without solicitor involvement, there are far to many technicalities arising from your father's past dealings for DIY to be a prudent course of action. Get advice.

NoPlacetoHide

responding to Posideon1

Typically the IPDI trust of your father's half share of the house would  technically be an IHT exempt transfer to your mother, despite the fact she was incapable of occupying the home by reason of dementia. Unusually, the trust only provides for a replacement home and makes no provision for a continuing trust to produce income from any house sale proceeds for your mum's lifetime benefit. 

Mam still has her share of the property its held as tennants in common so she would benefit from 50% of the sale.

therefore from the  Will wording you have shared since there is no requirement to benefit your mother after her 'tenancy' has terminated, there is the question that on the facts  you relate did an enforceable trust  for your mother actually exist at the point of your father's death? Much will turn on exactly  when you put your mother into a care home. If this was after your father's death and she occupied the property at that point, then the trust momentarily exsisted and later extinguished when she was moved out.

We moved mam out around three weeks later. we looked into the feasibilty of staying at home but she requires wrap around care which was too costly and would erode her capital very quickly. We dont have POA for health and wellbeing and mam has agreed to the move. She still wants the opportunity to move back if she doesnt take to it and has been paying maintenance and utility costs. 

The Loan Trust.  You are correct to be skeptical of the blasé  FA advice to exclude this from IHT form. I assume what your father created was a life company  Investment bond set up in a trust whereby a (small?) percentage of the £100k was gifted outright into trust, whilst the remainder was an outstanding loan due back to your father.

I assume your father had been taking small withdrawals since 2022 to reduce the loan, but the bulk of his loan remains outstanding, therefore this is definitely  part of his estate on death. As for the percentage gifted to the trust, at best this was a failed potential exempt transfer ( PET), so that gift erodes your father's NRB.

The bond was set up by both my mam and dad. I dont think anything was gifted  It states the "The loan plan will continue until you decide to withdraw your investment"  This must therefore be included. unles  spousal excemption applies - does the way the wills drawn up preclude this? If  its laiable can I reduce this by my mothers contribution into the loan?

The earlier discretionary trusts - You do not mention how much was gifted in 2006 and 2015 to theses entities which may well be  Investment Bond related again.  However you should be aware that under certain circumstances the gift into the 2015 discretionary trust can remain potentially taxable on the deceased up to 14 years after the gift is made

All trusts were set up as joint trusts with capital from mam and dad I would have to check the apportions. The fixed income is under the 5% threshold  These discounted gift plans were for £50K (2006) and £130K in 2015

I also can find no evidence any of these have been registered with HMRC - I fear a penalty is coming.

Your Aunt's estate - you will need to quantify how much your father actually inherited as beneficiary. As suggested by @Ras get a copy of the will ASAP. The fact that your mother and father were joint executors of Aunt's will did not  ( by itself) make your mother a joint beneficiary. In the absence of a DOV, and if your father was sole beneficiary on record, its possible the entire £100k gifted was a failed PET from him.

the residual value of the estate was bequeathed to both Mam and Dad. It appears that some payments to beneficaries were paid before the 7yr rule and some after after. None of the payments match the pecuniary legacies - everyone was paid more. If mam transferred money in to dads account inorder to make these payments would they become excempt from IHT  This would also apply to the trusts above.

Mam and dad had seperate bank and savings accounts but mam held a "Household Account"  which dad paid his pensions (work and state)  into  He then recived a standing order back into his own account. For IHT do i have to treat any monies paid out of his account as HIS GIFT and include for IHT purposes or (if i can prove with the paperwork) can i reduce his laibility down.  summing up I think we may be just over the IHT threshold if we take the hit on everything  as cash, shares and chattels comes to about £118K  Gifts £120K  and loan plan £109 K

I better speak with by sister and brother about obtaining legal advice 

silvercar

We moved mam out around three weeks later. we looked into the feasibilty of staying at home but she requires wrap around care which was too costly and would erode her capital very quickly. We dont have POA for health and wellbeing and mam has agreed to the move. She still wants the opportunity to move back if she doesnt take to it and has been paying maintenance and utility costs. 

Do you have POA for finance? I would have a conversation with your mam about the need for a health POA before her dementia makes it impossible to set one up. 

poseidon1

Definitely reccomend legal advice to help untangle/rationalise your parents gifting and trust arrangements over the years. 

The intial focus must be to  read back over the 7 years prior to death, how much of your father's nil rate band has been impacted by gifts attributed to him, and which he failed to survive the requisite 7 years thereafter. Clearly there was an element of joint gifting by your parents over the years, so being able to fairly attribute a percentage to your mother in that seven year period would be advantageous. 

As for the 2007 and 2015 trusts, now that you have identified these as being Discounted Gifts investment bond  arrangements, its possible the underlying trusts are not actually discretionary. With a bit of luck they are absolute trusts for the final beneficiaries on death of the surviving joint settlor (in this case your mother).  No doubt a solicitor will review and advise accordingly 

As for the loan plan trust, if this was on a joint life basis, I would expect the entirety of the remaining loan accrues for the direct benefit of your mother for her to continue taking the withdrawals to reduce the loan now accruing for her sole benefit. As such it should not affect your father's NRB, the  benefit of the loan has passed to an exempt beneficary  ( your mother).

I would mention that the whole point of these gift and loan investment bond trust schemes, is any growth occurring on the bond over and above the withdrawals accrues to the trust element to escape IHT in future. If too much is taken in loan repayments too quickly, little or nothing accrues for the benefit of the trust. In that situation as an IHT mitigation scheme it becomes rather pointless. No doubt a solicitor when reviewing that trust arrangement can offer their observations.

Finally as regards registration of trusts, sounds like there are at least 4 ongoing trusts needed to be registered, with the most recent being the trust for your father's share of the house. Obviously the Finanacial Advisor was remiss in not pointing this out for the 3 investment bond trusts, but perhaps the solicitor could intercede to offer mitigation on behalf of the trustees ( your mother?), to avoid penalties.