Property Trusts in Scotland

MuddyPaws345

Hello Forumites

I am new to the Forum and am hoping to tap into your knowledge following the recent death of my father. He was only married once and is survived by my mother (90 years old), myself and my brother. They live in Scotland.

Having 'evacuated the survivorship clause' in the house deeds, his will provides for a Life Rent Trust to be set up, with mother having the life rent interest in their house until her death (or a few other Trust-ending scenarios such as selling it), at which point the Trust ceases to exist. Mother, brother and I are named as Trustees. Based on earlier estate agent conversations, I estimate the current value of the house to be £800 - £900k.

He also leaves a SIPP with almost £500k. This is being transferred into a Beneficiary SIPP in mother's name. These two elements represent the bulk of his estate.

Question 1: While we wait for Confirmation (which I assume is required to set up the Life Rent Trust), is there anything we should be doing to minimise IHT on the estate once mother passes on? I'm thinking along the lines of putting mother's share of the house into a Trust / if we did that, is a Life Rent Trust still the right thing to do with father's half?

Question 2: There is an opportunity for me to rent a property very close to mother, to take care of her day-to-day needs, driving etc. Apart from age-related frailty, she is thankfully healthy and wishes to remain in her own home. Until I sell my current home (a long way from mother) and take over this rent (or buy a new home locally), does it make any difference in terms of gifts / IHT if she pays the rent directly, or if she gives me the money with which to pay the rent? Her funding the rent is just an interim solution, for her to have company and support whilst I sell my home.

Thank you so much in advance for any words of wisdom. I am trying to avoid any costly errors!

Keep_pedalling

Forget putting her share of their home in trust it will not save IHT and could lead to a CGT liability when it eventually sold. What is the value of her home?

It makes no difference if she pays your rent or gives you the money to pay for it.

MuddyPaws345

https://forums.moneysavingexpert.com/discussion/comment/81876993#Comment_81876993

Thank you for your feedback. Her home is worth £800 - 900k, and my father's half of it will now go into the Life Rent Trust. Ultimately, the plan is that I will buy out my brother's half and live in my mother's home once she is no longer with us. Of course things can change, but I would not plan to then sell it during my lifetime. I have been wondering if there is a particular way to structure this, to the advantage of all.

Keep_pedalling

https://forums.moneysavingexpert.com/discussion/comment/81877210#Comment_81877210

There are three of reasons people create these life interest trusts, one is to protect the children’s inheritance in the event the surviving spouse remarries, to protect children where there are blended families and to protect half the house from care costs. The second and third do not really apply here so the life interest is only of real value if your mother remarries. If that is highly unlikely then you might like to think of varying the will so your mother inherits the house outright as that makes things a lot simpler and makes no difference to her IHT liability.

Provided your mother has sufficient income of her own then it might be better to look at how that SIPP is distributed as they will be dropping into IHT terretory very soon.

MuddyPaws345

https://forums.moneysavingexpert.com/discussion/comment/81877231#Comment_81877231

Yes, the evacuation of the survivorship clause and provision for the creation of the Life Rent Trust was essentially to protect half of the house from Care Home fees. Ultimately, my father had dementia and passed away in a care home. The cost of the care made a significant dent in the SIPP after other cash reserves were used up, but we didn't reach the stage of qualifying for external funding. We can't foresee whether mother will need a care home in the longer term, but her fervent wish is not to go into one. If I am living very close by and able to support her needs, it may not be necessary. Remarrying at 90+ is highly unlikely!

I didn't know we could vary the will so that mother inherits Dad's share of the house. What would be the benefits of doing this? I presume Confirmation be required?

As an aside, I had been querying whether Confirmation is required at all - given that none of the financial institutions have requested it, and as the entire estate passes to mother, IHT is not an issue at this stage. As far as I can see, Confirmation would only be required to create the Trust as per the will.

Thank you so much for your advice.

Keep_pedalling

The benefits are really around simplifying her finances. Make no difference if she stays put for the rest of her life but if she needed to move into more appropriate accommodation at some point it would make things easier. With such a valuable property her care costs are very unlikely to burn through 50% of its value if she ever did need residential care so it seems to be an unnecessary complication.