Down sizing, buying with cash before selling mortgage free property

et1949ball

Hi, I'm recently widowed and half of my home is now held in trust for my husband's adult daughters.

I can live here until I die if I want or sell the house and replace it, with the daughters interest passing to the new property and any excess from the sale being invested with the interest paid to me.

I want to move on and be free of complications.

It could take 10 months for probate to be given and administration of the estate to be complete. I really don't want to wait that long.

I've seen flats close to my family that I can buy for cash without selling my current home. The price is approx £110k.

If I go ahead and buy a new flat, what are the implications financially please.

Regards ET

Keep_pedalling

Your husband’s will has created an immediate post death interest trust and that trust is the legal owner of of half your home while you are the beneficial owner of the whole home. If you purchase a flat for cash, then you will have to pay the additional second home stamp duty (5% if you live in England) but will be able to claim that back if you sell the current home within 3 years of the new purchase. 

On the sale of the existing home the cash raised from your husband’s share stays in trust and you will be entitled to the income from that.

Considering that you are in a position to buy yourself a new home out right, do you actually need that income? If not then it might be better to avoid the trust altogether so that your step daughter can have her inheritance now rather than having to wait for your death by which time inflation will have seriously reduced its value. 

Albermarle

It is not really my area but a question popped in my mind reading the OP.

Currently the daughters own half of the value of the current property via a trust.

 or sell the house and replace it, with the daughters interest passing to the new property 

As the OP is thinking of moving to a smaller, lower value property, would the daughters interest just be half of the new property ( if so they would be losing out) OR do they still keep half the value of the original house?
If so they would presumably own more than 50% of the new property .

Keep_pedalling

Albermarle said:

It is not really my area but a question popped in my mind reading the OP.

Currently the daughters own half of the value of the current property via a trust.

 or sell the house and replace it, with the daughters interest passing to the new property 

As the OP is thinking of moving to a smaller, lower value property, would the daughters interest just be half of the new property ( if so they would be losing out) OR do they still keep half the value of the original house?
If so they would presumably own more than 50% of the new property .

The way the OP is proposing this the new home will not be in trust at all she would own it out right. Once the existing home is sold she gets the cash from her share and the remainder goes in trust and she has the right to any income it generates.

This complicates things for the trustees as they now have an income generating trust to deal with rather than one with no income. This remains the case even if the trust retains a share in the new flat as the surplus from the sale of originally home will still be generating income.

These sort of arrangements are common and protect both the surviving spouse and the remaindermen who will eventually inherit. In this case the surviving spouse is both keen to move out ASAP and would appear to be financially secure, so undoing the trust through a deed of variation may be the best option for all concerned.

poseidon1

et1949ball said:

Hi, I'm recently widowed and half of my home is now held in trust for my husband's adult daughters.

I can live here until I die if I want or sell the house and replace it, with the daughters interest passing to the new property and any excess from the sale being invested with the interest paid to me.

I want to move on and be free of complications.
 
It could take 10 months for probate to be given and administration of the estate to be complete. I really don't want to wait that long.

I've seen flats close to my family that I can buy for cash without selling my current home. The price is approx £110k.

If I go ahead and buy a new flat, what are the implications financially please.

Regards ET

It would be helpful to know the value of the current house relative to the flat you can buy with your own cash.

What occurs to me is that if you progress with your plan, the current house would then be sold  after probate obtained and the resulting cash would be split as to 50% to you ( outright) to reflect your personal share therein, and the remaining 50% held in the  continuing  trust on your behalf for you to receive the income for the rest of your life. 

As to tax consequences of the above:

*  Income tax - the trustees would be liable to income tax on the trust income, before passing the net income to you. However this can be avoided if the income is mandated direct to you, in which case you become personally liable to pay the tax which may require self assessment tax returns.

* Capital gains tax - if trust monies are invested in stockmarket securities, there maybe capital gains to report periodically upon which tax may be payable by the trust.

* Inheritance tax - the value of the trust fund on your death will be added to your personal assets,  and will use part of your personal nil rate band. Depending on the size of your personal estate, both the trust and your estate might pay IHT as a result of this amalgamation.

Assuming your step daughters are trustees of the trust, they might find administering the trust burdensome especially since they derive no immediate benefit in doing so, but assume certain strict trustee obligations.

In the circumstances you and they maybe happy to arrive at a compromise settlement where you receive a discounted capital sum in exchange for terminating your income rights under the trust thereby bringing the trust to an end for all concerned. Maybe worth a chat with the solicitor if there is one involved in this matter to sound out the consensus of opinion, having regard to the points made above.

et1949ball

The current property is valued at approx £330,000. 

I would really like to move on and away. Currently there are no issues with the daughters, although they were very anti when we married, but who knows how things will be in the future.

My dear husband (bless him) complicated matters a bit and left all his residual estate equally between his daughters. There were no items specified, other than 'carpets, curtains, furniture etc', that again I am allowed the benefit of till I pop off.

The problem is, although there are a few pieces of furniture that he brought with him, during our twenty years of marriage, we bought things between us. And, for the last two years, whilst he was in self funded care, I've paid for all running costs of the house and I have bought several replacement items, I'm assuming those still belong to me.
As for carpets and curtains, I can't really see there will be much value in them.

I have no issue at all in giving the girls his personal items and any furniture that he brought with him, but I would have thought that the items bought when we were together would now be mine.

Sorry, but what seemed a very simple way of ensuring that both sets of children didn't lose out, seems to have become more complicated.

poseidon1

et1949ball said:

The current property is valued at approx £330,000. 

I would really like to move on and away. Currently there are no issues with the daughters, although they were very anti when we married, but who knows how things will be in the future.

My dear husband (bless him) complicated matters a bit and left all his residual estate equally between his daughters. There were no items specified, other than 'carpets, curtains, furniture etc', that again I am allowed the benefit of till I pop off.

The problem is, although there are a few pieces of furniture that he brought with him, during our twenty years of marriage, we bought things between us. And, for the last two years, whilst he was in self funded care, I've paid for all running costs of the house and I have bought several replacement items, I'm assuming those still belong to me.
As for carpets and curtains, I can't really see there will be much value in them.

I have no issue at all in giving the girls his personal items and any furniture that he brought with him, but I would have thought that the items bought when we were together would now be mine.

Sorry, but what seemed a very simple way of ensuring that both sets of children didn't lose out, seems to have become more complicated.

I would have thought certain household chattels such as carpets and curtains would be left behind when you move and sold with the house.  I can't see those items having any material value worth discussing.

I would also find it hard to imagine the step daughters having much interest in deliberating over the ownership of any furniture you wish to take with you to a new home unless we are talking about antiques or design classics with intrinsic rather than utilitarian value. 

I see no reason why you can't pre empt probate and move out if you have personal resources to do so. It would certainly simplify and potentially speed up the ultimate sale of the property if available to be marketed sooner rather than later.
As advised the step daughters need to consider the trustee obligation that will be placed on them  to manage and administer the modest £165k  trust fund  on your behalf, arising after selling the property and splitting the proceeds. Ideally, they should choose investments where the income is paid direct to you, leaving you to handle tax reporting thereon.

As regards your IHT exposure, bear in mind the value of the trust is added to your personal estate on death for IHT purposes in determining any tax due on your estate and the trust respectively.