Inheritance tax help

GillyB26

poseidon1 said:

GillyB26 said:

poseidon1 said:

OP, firstly  I will apologise for maligning the solicitors by jumping to conclusions based on your misunderstanding of the all important  ' Property Fund ' clause.

From my perspective the will is a reasonably well crafted document outlining in acute detail your son's Aunt's testamentary wishes. That said, there  is an omission mentioned below which could have avoided the current angst..

As you surmised  and based on clauses 4 to 7 all cash legacies and chattels pass to the various named individuals IHT free, no doubt intending these to have the 1st claim on the nil rate band.

Turning to the Property Fund at clause 8. 

Clause 8.1 ( the preamble)  clearly states the Property Fund is gifted subject to   '... any Inheritance Tax due in respect of the gift' 

There is no ambiguity here, the Property Fund ( as distinct from the property itself) bears the burden of the Inheritance Tax due on it. So I see no cause for any dispute on that point.

Crucially the Life Tenant has not been granted any right of occupation of the property itself merely a right to income from the Property Fund ( clause 8.4).  There is nothing in clause 8 or any of its sub clauses, which justifies the Life Tenant's contention that he has a lifetime right of property occupation, the usual clauses to thar effect are conspicuous by their absence. He needs to be disabused in strong terms of that supposition.

If I have any criticism at all of the drafting it is that the solicitors did not spell out in clear terms that the property must be sold to create the Property Fund',  thereby raising  cash for the associated IHT payable and then investing the net capital to produce the income.

I don't think that omission is fatal, since Clause 11 incorporates all of the Standard and special provisions of the Society of Trust and Estate Practitioners ( 3rd Edition).  -  see link below

https://www.step.org/system/files/media/files/2023-10/STEP_SSP3_2023.pdf

So  all this being reasonably clear the fly in the ointment appears to be the Life Tenant and the ill informed individual who has been giving him entirely false advice. I suspect that is the reason the original law firm has walked away, they do not want to get into a head to head confrontation with the Life Tenant.

This is a problem since the Life Tenant together with his legal aide cannot be trusted to administer the estate correctly, sell the property and assist in running the trust thereafter. 

Sadly this looks as if it is becoming or already become a contentious estate/trust matter if the Life Tenant refuses to see sense. 

You will need a STEP qualified lawyer to intervene and try to convince the Life Tenant that he is in the wrong and the property must be sold for the Property Fund to be established after IHT settled. If sense does not prevail this could end up in the courts, with high legal costs incurred to no one's benefit.

Going forward, there is the question of trusteeship. The Aunt wanted professional trustees, and in this case only an objective  professional would appear to be suitable, given the Life Tenant's demeanour. So even assuming an accord can be reached with the Life Tenant, professional fees will be incurred in running the trust.

Legal costs are a charge on the estate assets, but at this stage it appears the cash legacies would bear the brunt of such costs until the property is sold.

One last point, which might rein in the Life Tenant. Clause 2 states if any beneficiary disputes the validity of the will or makes any claim against the estate, their entitlement will be forfeit  and fall into residue. This could be the ' big stick'  needed here.

All in all a sad  outcome to what appears to be careful planning and good intentions by your son's Aunt.

That's very interesting thank you, but has raised more questions. If the partner has not been given right of tenancy should he even be living in the house? (Changing the locks and using the address as his business address I may add) What about paying for upkeep of the property, bills etc? It seems from what I have heard from my father in law that the will is completely at odds to what the deceased wanted as she was always adamant herself that the house must not be sold.

I have searched for STEP lawyers locally and the Solicitor dealing with the will on my behalf is one of only 4 STEP Solicitors in our area so I think I maybhave inadvertently chosen well. I think I will ask her to represent my Son going forward, so far she has only been offering advice for free. 

Back to my original question though who will be liable for the IHT? Now, you have read the will in it's entirety does that still fall on the partner? 

I can only work with the express wording of the will which is clear that the ' Property Fund' bears its own tax.
The Property Fund can only relate to the property the Life Tenant is living in so there can be no question at all of any IHT liabilty relating to it falling on your son in any way, in that regard the adviser to the Life Tenant has made an obviously false and distressing ( to you) statement. Your son has no vested entitlement to the property, or to an investment fund representing the same until death of the Life Tenant.

As to costs of maintaining the property prior to the Property Fund being established, that would normally fall on the estate until sale. However, as previously indicated that could mean exhausting the cash currently earmarked for legacies until such time the legacies can be met from the property sale proceeds. In the interim it could have been open to the trustees to offer the Life Tenant rent free occupation of the property ( pre sale) in exchange for his covering the routine outgoings. Clearly that is an arrangement the Life Tenant is resisting.

I note in this regard that the Life Tenant has a business in Tunisa which implies he also has a home there. Selling the UK home therefore would not appear to  render him homeless, which would have  been a reasonable basis for him to claim an enforceable right to occupy the property although even that is countered by clause 2 of the Will.

If as you say, the Aunt made statements  during her lifetime related to retaining the property after her death, then that is entirely contradicted by the Will. The will has to be the last word on that subject.

As indicated by Keep_pedalling, IHT could have been potentially avoided had the parties been married prior to her death.

Having said this, the full spousal exemption might not have been in point, if the partner is a non UK born Non Dom ( the  UK IHT rules do discriminate against Non Dom spouses), but even on the revised limits of Nil Rate Band plus a further £325k special Non Dom Spouse relief, a total of £650k would have sufficed to take the estate out of IHT charge.

Fortunately you have retained a STEP qualified lawyer,  so the only hope for a workable ( if not exactly amicable) outcome  is for the Life Tenant to accept the property has to be sold to give affect to the stated terms of the will as well as settle the IHT due thereon. He then goes on to benefit from the income for life from the net trust fund remaining.

Right now there is a vacuum with regard to executorship/trusteeship. That needs to be addressed ASAP, and preferable by a professional rather than the beneficiaries, none of whom appear to be qualified for the role.

Thanks for your help. I'm going to contact my Solicitor tomorrow and ask her to officially represent my son as at the moment she is just advising. At least you have set my mind at rest that there will be no IHT to be paid by myself or my son (yet at least) as I think this may all get very expensive anyway. 

GillyB26

GillyB26 said:

poseidon1 said:

GillyB26 said:

poseidon1 said:

OP, firstly  I will apologise for maligning the solicitors by jumping to conclusions based on your misunderstanding of the all important  ' Property Fund ' clause.

From my perspective the will is a reasonably well crafted document outlining in acute detail your son's Aunt's testamentary wishes. That said, there  is an omission mentioned below which could have avoided the current angst..

As you surmised  and based on clauses 4 to 7 all cash legacies and chattels pass to the various named individuals IHT free, no doubt intending these to have the 1st claim on the nil rate band.

Turning to the Property Fund at clause 8. 

Clause 8.1 ( the preamble)  clearly states the Property Fund is gifted subject to   '... any Inheritance Tax due in respect of the gift' 

There is no ambiguity here, the Property Fund ( as distinct from the property itself) bears the burden of the Inheritance Tax due on it. So I see no cause for any dispute on that point.

Crucially the Life Tenant has not been granted any right of occupation of the property itself merely a right to income from the Property Fund ( clause 8.4).  There is nothing in clause 8 or any of its sub clauses, which justifies the Life Tenant's contention that he has a lifetime right of property occupation, the usual clauses to thar effect are conspicuous by their absence. He needs to be disabused in strong terms of that supposition.

If I have any criticism at all of the drafting it is that the solicitors did not spell out in clear terms that the property must be sold to create the Property Fund',  thereby raising  cash for the associated IHT payable and then investing the net capital to produce the income.

I don't think that omission is fatal, since Clause 11 incorporates all of the Standard and special provisions of the Society of Trust and Estate Practitioners ( 3rd Edition).  -  see link below

https://www.step.org/system/files/media/files/2023-10/STEP_SSP3_2023.pdf

So  all this being reasonably clear the fly in the ointment appears to be the Life Tenant and the ill informed individual who has been giving him entirely false advice. I suspect that is the reason the original law firm has walked away, they do not want to get into a head to head confrontation with the Life Tenant.

This is a problem since the Life Tenant together with his legal aide cannot be trusted to administer the estate correctly, sell the property and assist in running the trust thereafter. 

Sadly this looks as if it is becoming or already become a contentious estate/trust matter if the Life Tenant refuses to see sense. 

You will need a STEP qualified lawyer to intervene and try to convince the Life Tenant that he is in the wrong and the property must be sold for the Property Fund to be established after IHT settled. If sense does not prevail this could end up in the courts, with high legal costs incurred to no one's benefit.

Going forward, there is the question of trusteeship. The Aunt wanted professional trustees, and in this case only an objective  professional would appear to be suitable, given the Life Tenant's demeanour. So even assuming an accord can be reached with the Life Tenant, professional fees will be incurred in running the trust.

Legal costs are a charge on the estate assets, but at this stage it appears the cash legacies would bear the brunt of such costs until the property is sold.

One last point, which might rein in the Life Tenant. Clause 2 states if any beneficiary disputes the validity of the will or makes any claim against the estate, their entitlement will be forfeit  and fall into residue. This could be the ' big stick'  needed here.

All in all a sad  outcome to what appears to be careful planning and good intentions by your son's Aunt.

That's very interesting thank you, but has raised more questions. If the partner has not been given right of tenancy should he even be living in the house? (Changing the locks and using the address as his business address I may add) What about paying for upkeep of the property, bills etc? It seems from what I have heard from my father in law that the will is completely at odds to what the deceased wanted as she was always adamant herself that the house must not be sold.

I have searched for STEP lawyers locally and the Solicitor dealing with the will on my behalf is one of only 4 STEP Solicitors in our area so I think I maybhave inadvertently chosen well. I think I will ask her to represent my Son going forward, so far she has only been offering advice for free. 

Back to my original question though who will be liable for the IHT? Now, you have read the will in it's entirety does that still fall on the partner? 

I can only work with the express wording of the will which is clear that the ' Property Fund' bears its own tax.
The Property Fund can only relate to the property the Life Tenant is living in so there can be no question at all of any IHT liabilty relating to it falling on your son in any way, in that regard the adviser to the Life Tenant has made an obviously false and distressing ( to you) statement. Your son has no vested entitlement to the property, or to an investment fund representing the same until death of the Life Tenant.

As to costs of maintaining the property prior to the Property Fund being established, that would normally fall on the estate until sale. However, as previously indicated that could mean exhausting the cash currently earmarked for legacies until such time the legacies can be met from the property sale proceeds. In the interim it could have been open to the trustees to offer the Life Tenant rent free occupation of the property ( pre sale) in exchange for his covering the routine outgoings. Clearly that is an arrangement the Life Tenant is resisting.

I note in this regard that the Life Tenant has a business in Tunisa which implies he also has a home there. Selling the UK home therefore would not appear to  render him homeless, which would have  been a reasonable basis for him to claim an enforceable right to occupy the property although even that is countered by clause 2 of the Will.

If as you say, the Aunt made statements  during her lifetime related to retaining the property after her death, then that is entirely contradicted by the Will. The will has to be the last word on that subject.

As indicated by Keep_pedalling, IHT could have been potentially avoided had the parties been married prior to her death.

Having said this, the full spousal exemption might not have been in point, if the partner is a non UK born Non Dom ( the  UK IHT rules do discriminate against Non Dom spouses), but even on the revised limits of Nil Rate Band plus a further £325k special Non Dom Spouse relief, a total of £650k would have sufficed to take the estate out of IHT charge.

Fortunately you have retained a STEP qualified lawyer,  so the only hope for a workable ( if not exactly amicable) outcome  is for the Life Tenant to accept the property has to be sold to give affect to the stated terms of the will as well as settle the IHT due thereon. He then goes on to benefit from the income for life from the net trust fund remaining.

Right now there is a vacuum with regard to executorship/trusteeship. That needs to be addressed ASAP, and preferable by a professional rather than the beneficiaries, none of whom appear to be qualified for the role.

Thanks for your help. I'm going to contact my Solicitor tomorrow and ask her to officially represent my son as at the moment she is just advising. At least you have set my mind at rest that there will be no IHT to be paid by myself or my son (yet at least) as I think this may all get very expensive anyway. 

My son has just asked a question I can't answer. Could the Life Tenant buy the Property himself and then receive an income from the Property Trust? 

poseidon1

GillyB26 said:

GillyB26 said:

poseidon1 said:

GillyB26 said:

poseidon1 said:

OP, firstly  I will apologise for maligning the solicitors by jumping to conclusions based on your misunderstanding of the all important  ' Property Fund ' clause.

From my perspective the will is a reasonably well crafted document outlining in acute detail your son's Aunt's testamentary wishes. That said, there  is an omission mentioned below which could have avoided the current angst..

As you surmised  and based on clauses 4 to 7 all cash legacies and chattels pass to the various named individuals IHT free, no doubt intending these to have the 1st claim on the nil rate band.

Turning to the Property Fund at clause 8. 

Clause 8.1 ( the preamble)  clearly states the Property Fund is gifted subject to   '... any Inheritance Tax due in respect of the gift' 

There is no ambiguity here, the Property Fund ( as distinct from the property itself) bears the burden of the Inheritance Tax due on it. So I see no cause for any dispute on that point.

Crucially the Life Tenant has not been granted any right of occupation of the property itself merely a right to income from the Property Fund ( clause 8.4).  There is nothing in clause 8 or any of its sub clauses, which justifies the Life Tenant's contention that he has a lifetime right of property occupation, the usual clauses to thar effect are conspicuous by their absence. He needs to be disabused in strong terms of that supposition.

If I have any criticism at all of the drafting it is that the solicitors did not spell out in clear terms that the property must be sold to create the Property Fund',  thereby raising  cash for the associated IHT payable and then investing the net capital to produce the income.

I don't think that omission is fatal, since Clause 11 incorporates all of the Standard and special provisions of the Society of Trust and Estate Practitioners ( 3rd Edition).  -  see link below

https://www.step.org/system/files/media/files/2023-10/STEP_SSP3_2023.pdf

So  all this being reasonably clear the fly in the ointment appears to be the Life Tenant and the ill informed individual who has been giving him entirely false advice. I suspect that is the reason the original law firm has walked away, they do not want to get into a head to head confrontation with the Life Tenant.

This is a problem since the Life Tenant together with his legal aide cannot be trusted to administer the estate correctly, sell the property and assist in running the trust thereafter. 

Sadly this looks as if it is becoming or already become a contentious estate/trust matter if the Life Tenant refuses to see sense. 

You will need a STEP qualified lawyer to intervene and try to convince the Life Tenant that he is in the wrong and the property must be sold for the Property Fund to be established after IHT settled. If sense does not prevail this could end up in the courts, with high legal costs incurred to no one's benefit.

Going forward, there is the question of trusteeship. The Aunt wanted professional trustees, and in this case only an objective  professional would appear to be suitable, given the Life Tenant's demeanour. So even assuming an accord can be reached with the Life Tenant, professional fees will be incurred in running the trust.

Legal costs are a charge on the estate assets, but at this stage it appears the cash legacies would bear the brunt of such costs until the property is sold.

One last point, which might rein in the Life Tenant. Clause 2 states if any beneficiary disputes the validity of the will or makes any claim against the estate, their entitlement will be forfeit  and fall into residue. This could be the ' big stick'  needed here.

All in all a sad  outcome to what appears to be careful planning and good intentions by your son's Aunt.

That's very interesting thank you, but has raised more questions. If the partner has not been given right of tenancy should he even be living in the house? (Changing the locks and using the address as his business address I may add) What about paying for upkeep of the property, bills etc? It seems from what I have heard from my father in law that the will is completely at odds to what the deceased wanted as she was always adamant herself that the house must not be sold.

I have searched for STEP lawyers locally and the Solicitor dealing with the will on my behalf is one of only 4 STEP Solicitors in our area so I think I maybhave inadvertently chosen well. I think I will ask her to represent my Son going forward, so far she has only been offering advice for free. 

Back to my original question though who will be liable for the IHT? Now, you have read the will in it's entirety does that still fall on the partner? 

I can only work with the express wording of the will which is clear that the ' Property Fund' bears its own tax.
The Property Fund can only relate to the property the Life Tenant is living in so there can be no question at all of any IHT liabilty relating to it falling on your son in any way, in that regard the adviser to the Life Tenant has made an obviously false and distressing ( to you) statement. Your son has no vested entitlement to the property, or to an investment fund representing the same until death of the Life Tenant.

As to costs of maintaining the property prior to the Property Fund being established, that would normally fall on the estate until sale. However, as previously indicated that could mean exhausting the cash currently earmarked for legacies until such time the legacies can be met from the property sale proceeds. In the interim it could have been open to the trustees to offer the Life Tenant rent free occupation of the property ( pre sale) in exchange for his covering the routine outgoings. Clearly that is an arrangement the Life Tenant is resisting.

I note in this regard that the Life Tenant has a business in Tunisa which implies he also has a home there. Selling the UK home therefore would not appear to  render him homeless, which would have  been a reasonable basis for him to claim an enforceable right to occupy the property although even that is countered by clause 2 of the Will.

If as you say, the Aunt made statements  during her lifetime related to retaining the property after her death, then that is entirely contradicted by the Will. The will has to be the last word on that subject.

As indicated by Keep_pedalling, IHT could have been potentially avoided had the parties been married prior to her death.

Having said this, the full spousal exemption might not have been in point, if the partner is a non UK born Non Dom ( the  UK IHT rules do discriminate against Non Dom spouses), but even on the revised limits of Nil Rate Band plus a further £325k special Non Dom Spouse relief, a total of £650k would have sufficed to take the estate out of IHT charge.

Fortunately you have retained a STEP qualified lawyer,  so the only hope for a workable ( if not exactly amicable) outcome  is for the Life Tenant to accept the property has to be sold to give affect to the stated terms of the will as well as settle the IHT due thereon. He then goes on to benefit from the income for life from the net trust fund remaining.

Right now there is a vacuum with regard to executorship/trusteeship. That needs to be addressed ASAP, and preferable by a professional rather than the beneficiaries, none of whom appear to be qualified for the role.

Thanks for your help. I'm going to contact my Solicitor tomorrow and ask her to officially represent my son as at the moment she is just advising. At least you have set my mind at rest that there will be no IHT to be paid by myself or my son (yet at least) as I think this may all get very expensive anyway. 

My son has just asked a question I can't answer. Could the Life Tenant buy the Property himself and then receive an income from the Property Trust? 

Certainly possible although I can't see the benefit to the Life Tenant of expending £450, 000 of his own capital to receive an income from a lesser amount invested to give him a lifetime income. He would need to have a very strong emotional attachment to the property, to put himself at such a significant personal financial  and tax disadvantage from that suggestion. 

Frankly, the better approach would be breaking the trust by agreeing a discounted capital amount payable to the life tenant ( in lieu of lifetime income), with the residual trust capital then held on trust for your son until age 25. This would represent a clean break for all concerned, with you going forward as sole trustee for your son. Certainly, that might be a worthwhile idea to raise with your solicitor and put to the Life Tenant. 

Keep_pedalling

poseidon1 said:

GillyB26 said:

GillyB26 said:

poseidon1 said:

GillyB26 said:

poseidon1 said:

OP, firstly  I will apologise for maligning the solicitors by jumping to conclusions based on your misunderstanding of the all important  ' Property Fund ' clause.

From my perspective the will is a reasonably well crafted document outlining in acute detail your son's Aunt's testamentary wishes. That said, there  is an omission mentioned below which could have avoided the current angst..

As you surmised  and based on clauses 4 to 7 all cash legacies and chattels pass to the various named individuals IHT free, no doubt intending these to have the 1st claim on the nil rate band.

Turning to the Property Fund at clause 8. 

Clause 8.1 ( the preamble)  clearly states the Property Fund is gifted subject to   '... any Inheritance Tax due in respect of the gift' 

There is no ambiguity here, the Property Fund ( as distinct from the property itself) bears the burden of the Inheritance Tax due on it. So I see no cause for any dispute on that point.

Crucially the Life Tenant has not been granted any right of occupation of the property itself merely a right to income from the Property Fund ( clause 8.4).  There is nothing in clause 8 or any of its sub clauses, which justifies the Life Tenant's contention that he has a lifetime right of property occupation, the usual clauses to thar effect are conspicuous by their absence. He needs to be disabused in strong terms of that supposition.

If I have any criticism at all of the drafting it is that the solicitors did not spell out in clear terms that the property must be sold to create the Property Fund',  thereby raising  cash for the associated IHT payable and then investing the net capital to produce the income.

I don't think that omission is fatal, since Clause 11 incorporates all of the Standard and special provisions of the Society of Trust and Estate Practitioners ( 3rd Edition).  -  see link below

https://www.step.org/system/files/media/files/2023-10/STEP_SSP3_2023.pdf

So  all this being reasonably clear the fly in the ointment appears to be the Life Tenant and the ill informed individual who has been giving him entirely false advice. I suspect that is the reason the original law firm has walked away, they do not want to get into a head to head confrontation with the Life Tenant.

This is a problem since the Life Tenant together with his legal aide cannot be trusted to administer the estate correctly, sell the property and assist in running the trust thereafter. 

Sadly this looks as if it is becoming or already become a contentious estate/trust matter if the Life Tenant refuses to see sense. 

You will need a STEP qualified lawyer to intervene and try to convince the Life Tenant that he is in the wrong and the property must be sold for the Property Fund to be established after IHT settled. If sense does not prevail this could end up in the courts, with high legal costs incurred to no one's benefit.

Going forward, there is the question of trusteeship. The Aunt wanted professional trustees, and in this case only an objective  professional would appear to be suitable, given the Life Tenant's demeanour. So even assuming an accord can be reached with the Life Tenant, professional fees will be incurred in running the trust.

Legal costs are a charge on the estate assets, but at this stage it appears the cash legacies would bear the brunt of such costs until the property is sold.

One last point, which might rein in the Life Tenant. Clause 2 states if any beneficiary disputes the validity of the will or makes any claim against the estate, their entitlement will be forfeit  and fall into residue. This could be the ' big stick'  needed here.

All in all a sad  outcome to what appears to be careful planning and good intentions by your son's Aunt.

That's very interesting thank you, but has raised more questions. If the partner has not been given right of tenancy should he even be living in the house? (Changing the locks and using the address as his business address I may add) What about paying for upkeep of the property, bills etc? It seems from what I have heard from my father in law that the will is completely at odds to what the deceased wanted as she was always adamant herself that the house must not be sold.

I have searched for STEP lawyers locally and the Solicitor dealing with the will on my behalf is one of only 4 STEP Solicitors in our area so I think I maybhave inadvertently chosen well. I think I will ask her to represent my Son going forward, so far she has only been offering advice for free. 

Back to my original question though who will be liable for the IHT? Now, you have read the will in it's entirety does that still fall on the partner? 

I can only work with the express wording of the will which is clear that the ' Property Fund' bears its own tax.
The Property Fund can only relate to the property the Life Tenant is living in so there can be no question at all of any IHT liabilty relating to it falling on your son in any way, in that regard the adviser to the Life Tenant has made an obviously false and distressing ( to you) statement. Your son has no vested entitlement to the property, or to an investment fund representing the same until death of the Life Tenant.

As to costs of maintaining the property prior to the Property Fund being established, that would normally fall on the estate until sale. However, as previously indicated that could mean exhausting the cash currently earmarked for legacies until such time the legacies can be met from the property sale proceeds. In the interim it could have been open to the trustees to offer the Life Tenant rent free occupation of the property ( pre sale) in exchange for his covering the routine outgoings. Clearly that is an arrangement the Life Tenant is resisting.

I note in this regard that the Life Tenant has a business in Tunisa which implies he also has a home there. Selling the UK home therefore would not appear to  render him homeless, which would have  been a reasonable basis for him to claim an enforceable right to occupy the property although even that is countered by clause 2 of the Will.

If as you say, the Aunt made statements  during her lifetime related to retaining the property after her death, then that is entirely contradicted by the Will. The will has to be the last word on that subject.

As indicated by Keep_pedalling, IHT could have been potentially avoided had the parties been married prior to her death.

Having said this, the full spousal exemption might not have been in point, if the partner is a non UK born Non Dom ( the  UK IHT rules do discriminate against Non Dom spouses), but even on the revised limits of Nil Rate Band plus a further £325k special Non Dom Spouse relief, a total of £650k would have sufficed to take the estate out of IHT charge.

Fortunately you have retained a STEP qualified lawyer,  so the only hope for a workable ( if not exactly amicable) outcome  is for the Life Tenant to accept the property has to be sold to give affect to the stated terms of the will as well as settle the IHT due thereon. He then goes on to benefit from the income for life from the net trust fund remaining.

Right now there is a vacuum with regard to executorship/trusteeship. That needs to be addressed ASAP, and preferable by a professional rather than the beneficiaries, none of whom appear to be qualified for the role.

Thanks for your help. I'm going to contact my Solicitor tomorrow and ask her to officially represent my son as at the moment she is just advising. At least you have set my mind at rest that there will be no IHT to be paid by myself or my son (yet at least) as I think this may all get very expensive anyway. 

My son has just asked a question I can't answer. Could the Life Tenant buy the Property himself and then receive an income from the Property Trust? 

Certainly possible although I can't see the benefit to the Life Tenant of expending £450, 000 of his own capital to receive an income from a lesser amount invested to give him a lifetime income. He would need to have a very strong emotional attachment to the property, to put himself at such a significant personal financial  and tax disadvantage from that suggestion. 

Frankly, the better approach would be breaking the trust by agreeing a discounted capital amount payable to the life tenant ( in lieu of lifetime income), with the residual trust capital then held on trust for your son until age 25. This would represent a clean break for all concerned, with you going forward as sole trustee for your son. Certainly, that might be a worthwhile idea to raise with your solicitor and put to the Life Tenant. 

One other option is that he buys a percentage of the property, enough to cover the IHT and the rest stays in trust. 

GillyB26

poseidon1 said:

GillyB26 said:

GillyB26 said:

poseidon1 said:

GillyB26 said:

poseidon1 said:

OP, firstly  I will apologise for maligning the solicitors by jumping to conclusions based on your misunderstanding of the all important  ' Property Fund ' clause.

From my perspective the will is a reasonably well crafted document outlining in acute detail your son's Aunt's testamentary wishes. That said, there  is an omission mentioned below which could have avoided the current angst..

As you surmised  and based on clauses 4 to 7 all cash legacies and chattels pass to the various named individuals IHT free, no doubt intending these to have the 1st claim on the nil rate band.

Turning to the Property Fund at clause 8. 

Clause 8.1 ( the preamble)  clearly states the Property Fund is gifted subject to   '... any Inheritance Tax due in respect of the gift' 

There is no ambiguity here, the Property Fund ( as distinct from the property itself) bears the burden of the Inheritance Tax due on it. So I see no cause for any dispute on that point.

Crucially the Life Tenant has not been granted any right of occupation of the property itself merely a right to income from the Property Fund ( clause 8.4).  There is nothing in clause 8 or any of its sub clauses, which justifies the Life Tenant's contention that he has a lifetime right of property occupation, the usual clauses to thar effect are conspicuous by their absence. He needs to be disabused in strong terms of that supposition.

If I have any criticism at all of the drafting it is that the solicitors did not spell out in clear terms that the property must be sold to create the Property Fund',  thereby raising  cash for the associated IHT payable and then investing the net capital to produce the income.

I don't think that omission is fatal, since Clause 11 incorporates all of the Standard and special provisions of the Society of Trust and Estate Practitioners ( 3rd Edition).  -  see link below

https://www.step.org/system/files/media/files/2023-10/STEP_SSP3_2023.pdf

So  all this being reasonably clear the fly in the ointment appears to be the Life Tenant and the ill informed individual who has been giving him entirely false advice. I suspect that is the reason the original law firm has walked away, they do not want to get into a head to head confrontation with the Life Tenant.

This is a problem since the Life Tenant together with his legal aide cannot be trusted to administer the estate correctly, sell the property and assist in running the trust thereafter. 

Sadly this looks as if it is becoming or already become a contentious estate/trust matter if the Life Tenant refuses to see sense. 

You will need a STEP qualified lawyer to intervene and try to convince the Life Tenant that he is in the wrong and the property must be sold for the Property Fund to be established after IHT settled. If sense does not prevail this could end up in the courts, with high legal costs incurred to no one's benefit.

Going forward, there is the question of trusteeship. The Aunt wanted professional trustees, and in this case only an objective  professional would appear to be suitable, given the Life Tenant's demeanour. So even assuming an accord can be reached with the Life Tenant, professional fees will be incurred in running the trust.

Legal costs are a charge on the estate assets, but at this stage it appears the cash legacies would bear the brunt of such costs until the property is sold.

One last point, which might rein in the Life Tenant. Clause 2 states if any beneficiary disputes the validity of the will or makes any claim against the estate, their entitlement will be forfeit  and fall into residue. This could be the ' big stick'  needed here.

All in all a sad  outcome to what appears to be careful planning and good intentions by your son's Aunt.

That's very interesting thank you, but has raised more questions. If the partner has not been given right of tenancy should he even be living in the house? (Changing the locks and using the address as his business address I may add) What about paying for upkeep of the property, bills etc? It seems from what I have heard from my father in law that the will is completely at odds to what the deceased wanted as she was always adamant herself that the house must not be sold.

I have searched for STEP lawyers locally and the Solicitor dealing with the will on my behalf is one of only 4 STEP Solicitors in our area so I think I maybhave inadvertently chosen well. I think I will ask her to represent my Son going forward, so far she has only been offering advice for free. 

Back to my original question though who will be liable for the IHT? Now, you have read the will in it's entirety does that still fall on the partner? 

I can only work with the express wording of the will which is clear that the ' Property Fund' bears its own tax.
The Property Fund can only relate to the property the Life Tenant is living in so there can be no question at all of any IHT liabilty relating to it falling on your son in any way, in that regard the adviser to the Life Tenant has made an obviously false and distressing ( to you) statement. Your son has no vested entitlement to the property, or to an investment fund representing the same until death of the Life Tenant.

As to costs of maintaining the property prior to the Property Fund being established, that would normally fall on the estate until sale. However, as previously indicated that could mean exhausting the cash currently earmarked for legacies until such time the legacies can be met from the property sale proceeds. In the interim it could have been open to the trustees to offer the Life Tenant rent free occupation of the property ( pre sale) in exchange for his covering the routine outgoings. Clearly that is an arrangement the Life Tenant is resisting.

I note in this regard that the Life Tenant has a business in Tunisa which implies he also has a home there. Selling the UK home therefore would not appear to  render him homeless, which would have  been a reasonable basis for him to claim an enforceable right to occupy the property although even that is countered by clause 2 of the Will.

If as you say, the Aunt made statements  during her lifetime related to retaining the property after her death, then that is entirely contradicted by the Will. The will has to be the last word on that subject.

As indicated by Keep_pedalling, IHT could have been potentially avoided had the parties been married prior to her death.

Having said this, the full spousal exemption might not have been in point, if the partner is a non UK born Non Dom ( the  UK IHT rules do discriminate against Non Dom spouses), but even on the revised limits of Nil Rate Band plus a further £325k special Non Dom Spouse relief, a total of £650k would have sufficed to take the estate out of IHT charge.

Fortunately you have retained a STEP qualified lawyer,  so the only hope for a workable ( if not exactly amicable) outcome  is for the Life Tenant to accept the property has to be sold to give affect to the stated terms of the will as well as settle the IHT due thereon. He then goes on to benefit from the income for life from the net trust fund remaining.

Right now there is a vacuum with regard to executorship/trusteeship. That needs to be addressed ASAP, and preferable by a professional rather than the beneficiaries, none of whom appear to be qualified for the role.

Thanks for your help. I'm going to contact my Solicitor tomorrow and ask her to officially represent my son as at the moment she is just advising. At least you have set my mind at rest that there will be no IHT to be paid by myself or my son (yet at least) as I think this may all get very expensive anyway. 

My son has just asked a question I can't answer. Could the Life Tenant buy the Property himself and then receive an income from the Property Trust? 

Certainly possible although I can't see the benefit to the Life Tenant of expending £450, 000 of his own capital to receive an income from a lesser amount invested to give him a lifetime income. He would need to have a very strong emotional attachment to the property, to put himself at such a significant personal financial  and tax disadvantage from that suggestion. 

Frankly, the better approach would be breaking the trust by agreeing a discounted capital amount payable to the life tenant ( in lieu of lifetime income), with the residual trust capital then held on trust for your son until age 25. This would represent a clean break for all concerned, with you going forward as sole trustee for your son. Certainly, that might be a worthwhile idea to raise with your solicitor and put to the Life Tenant. 

Ok, I had already suggested that the house is sold and he has an agreed "cut" to the Life Tenant but as he assumed he could stay in the property he was completely against that idea. That would be my preferred option so my Son isn't tied to someone he barely knows for 10+ years.

Re an emotional attachment, he is very attached to the house. He lived there for 11 years with the deceased before he took Tunisian residency. I think it would break his heart to sell.

Dead_keen

Some other things to think about when chatting through with your new lawyer (in no particular order):

1. Who does the bank transfer for the IHT to HMRC?  How does the installment option work (and what is the rate of interest)? Who bears that interest?  What if the personal representatives cannot agree? 

2. What is the life tenant refuses to agree to anything (who the personal representatives are, selling the house, paying the IHT, etc)?  What should the court be asked? For example, the names of the personal represetatives, trustees, to authorise the sale of the house, etc)? What is the process of going to court and how much will it cost?  Who pays that costs now?  What if the remainderman wins or loses, will the estate pay it?

3. This arrangement may well go on for a very long time.  For someone in their early 70s, there's a 50% chance that they will live another 15 years.  But there roughly a 2.5% (one-in-forty) chance of them living 30 years.  What are the practical ways of ending things sooner?

4. Over that time there will be a lot of professional fees in you have professional trustees.  How much are likely to be?  Who will pay those invoices if there is still a house?  Who will bear the cost (life tenant vs remainderman)?

5. If the house is sold, how will the funds be invested to be even-handed between the life tenant (who may want high yielding investments) vs the remainderman (who will want high capital growth investments)?  How much will that advice cost?

6. Does the trust have to be registered with HMRC? Do tax returns have to be done? Does that change if the property is sold and the cash invested?  If so, how will the trustees or life tenant deal with the tax?

7. If your son's interest is only 15, and it is conditional on him reaching age 25, it is possible to reach an agreement with the life tenant to sort something out between them?  Can the trustees do it and impose it on a minor? 

8. Who should pay for / bear the costs of things like council tax (e.g. if the property is occupied or left empty), utilities, repairs, new kitchen, property insurance, etc?

9. What is the process of getting powers of administration if everyone agrees or there is no agreement (and who is "everyone" that needs to agree)?

10. Who should be the trustees going forward?  What happens if they can't agree or can't be bothered?

11. What information is needed to get probate (e.g. details of bank accounts, fill in IHT forms, etc)??

12. How can agro be avoided? Or does the remainderman need to take a forceful position to make sure that the IHT is paid on time (to avoid interest and penalties)?  

I'm sure that there are lots of other questions too!