Probate with Lifetime Trust - DIYable?

Wangeye08

Sadly my mum passed away in November and my dad last week. They had mirror wills which left the surviving spouse a lifetime trust and my brother and I as both executors and beneficiaries.

They had several properties which are being split between us. There's no other trusts or significant assets and no other "complications".

I've looked at probate and it seems pretty straightforward. I just wanted to know if the fact that there is a trust would make life difficult or whether this should be dealt with by a solicitor. I'm trying to avoid this if we can reasonably DIY it though.

Thanks

Keep_pedalling

Did the trust cover all the properties or just the marital home? Was the trust registered with HMRC after your mother died?

Wangeye08

https://forums.moneysavingexpert.com/discussion/comment/81906106#Comment_81906106

Sorry, should have made that clearer in my original post. All properties were covered under the Trust and no, it hadn't yet been registered with the HMRC.

poseidon1

Need to see the exact wording of your mother's will establishing your father's trust, since if the other properties were part of the trust, you may struggle with the trust tax compliance aspect both whilst your father was alive and following his death .

Also were all properties held as tenants in common or joint tenants?

Were the properties rent generating? Are the total asset values in excess of £1 million and therefore IHT is in point?

In short you have provided no information to determine if you can handle both the estates and the trust, wholly on a DIY basis without professional input.

Wangeye08

https://forums.moneysavingexpert.com/discussion/comment/81906140#Comment_81906140

Thanks for the reply. The text from the will is below., but in response to your other questions.

All properties were held as tenants in common.
The properties were/are rent generating, but total value is below 1 million.

1. I REVOKE all other Wills and Testamentary Dispositions previously made by me and declare this to be my last Will ("my Will")

2. I APPOINT my son [SON 1] ('[SON 1]') of [REDACTED ADDRESS] and my son [SON 2] ('[SON 2]') of [REDACTED ADDRESS] to be the Executors and Trustees of my Will.

2.1 In my Will the expression "my Trustees" means where the context requires my Personal Representative or Personal Representatives for the time being who act lawfully in the administration of my Estate or the Trustee or Trustees for the time being of any trust arising under my Will

3. I GIVE the sum of REDACTED

4. I GIVE all my share and interest in the freehold property known as [PROPERTY 1] [REDACTED ADDRESS] and the Property known as [PROPERTY 2] [REDACTED ADDRESS] or any such other freehold or leasehold property I may own at the date of my death (hereinafter called "the Properties") to my Trustees to hold the Property ON TRUST on the following terms:-

4.1 MY TRUSTEES shall permit [SPOUSE] (my "HUSBAND") to reside in the Properties or any part of the Properties until his death (hereinafter called "the Event") and I DIRECT that no steps shall be taken by my Trustees to enforce the trust for sale applicable to the Property without the written consent of my HUSBAND and until the happening of the Event my Trustees shall permit him to use and enjoy the same but upon the terms that he shall pay all rents rates and other outgoings payable in respect thereof and keep the Property and buildings thereon in reasonable repair and condition and adequately insured under comprehensive cover and I DECLARE that my Trustees shall not be liable to see to such repair and condition or the effecting and keeping up of such insurance or for the breach of any obligations imposed upon my HUSBAND

4.2 IF my HUSBAND shall at any time request in writing my Trustees to join in selling the Property or any other property purchased pursuant to this sub-clause my Trustees shall do so at any time thereafter and at the like request of my HUSBAND shall apply all or any part according to his request of the net proceeds of sale representing my said interest or share in or towards the purchase of another freehold or leasehold property or flat or in an interest or share therein selected by him and such acquired asset interest or share to be held upon the trusts for his benefit corresponding in all respects to the trusts hereinbefore declared

4.3 SUBJECT TO the above clause any surplus arising from the sale and purchase of another freehold or leasehold property or flat or an interest or share therein shall be held on trust for my HUSBAND to take the income therefrom until the happening of the Event

4.4 IF my HUSBAND shall at any time request in writing my Trustees to join in the renting of the Property my Trustees shall do so at any time thereafter and shall pay all the rental income to my HUSBAND absolutely

4.5 SUBJECT TO the trusts declared by clause 4 and sub-clauses 4.1 and 4.2 and 4.3 and 4.4 of this clause my Trustees shall hold the Property and net proceeds of sale upon trust of the following Clauses

5. MY TRUSTEES shall hold the rest of my Estate on trust to pay executorship expenses and debts including mortgages secured on real or leasehold property and any Inheritance Tax in respect of property passing under my Will or payable because of my death on any lifetime transfer by me or payable because of my death on property in which I hold a beneficial interest as joint tenant and shall hold the residue (my "Residuary Estate") on trust of the following Clause

MY TRUSTEE shall divide my Residuary Estate into One Hundred (100) equal parts (each part is referred to as a Share) and shall:

5.1 Pay Fifty (50) equal Shares to my HUSBAND absolutely provided that if he shall have predeceased me then [SON 1] and [SON 2] shall equally inherit the share of my Residuary Estate that my HUSBAND would otherwise have inherited had he survived me

5.2 Pay Twenty Five (25) equal Shares to [SON 1] absolutely provided that if he shall predecease me leaving children of his own who are living at the date of my death such children shall equally inherit the share of my Residuary Estate that their deceased parent would otherwise have inherited had they survived me

5.3 Pay Twenty Five (25) equal Shares to [SON 2] absolutely provided that if he shall predecease me leaving children of his own who are living at the date of my death such children shall equally inherit the share of my Residuary Estate that their deceased parent would otherwise have inherited had they survived me

6 The Standard Provisions of the Society of Trust and Estate Practitioners (1st Edition) shall apply with the deletion of paragraph 5 Section 11 Trusts of Land and Appointment of Trustees Act 1996 (Consultation with beneficiaries) shall not apply

poseidon1

The will drafting lacks the precision I would expect, if establishing an IPDI trust for surviving spouse in the matrimonial home, whilst also providing a seperate life interest in jointly owned investment properties.

I also get the impression from the terms of clause 4 that there were only 2 properties at outset when Wills were first executed, but you indicate there are now more than two. In any event the intent seems to be all properties to be the subject of the trust.

You say apart from properties there were no other 'significant' assets. So your mother had no sizeable cash deposits, isas or any other non property assets when she died? If not, presumably, there was nothing much in the residuary estate covered by clause 5?

As regards the rental property income, did your parents have an accountant to handle annual income tax compliance or did they handle self assessment themselves?

Going, forward there are a number of tasks to perform which overall I suspect you will need professional help.

Starting with the death of your mother;

• Valuation of her 50% share of all properties on her date of death.
• Ascertaining her income tax liabilty to date of death on her share of rental income, and other untaxed income received.
• As regards the trust established under her will, strictly speaking that should have been registered on HMRC trust register within 9 months of her death, with penalties for non compliance. Clearly still within the time limit for this.
• As regards the trust 50% of property rental income, again strictly speaking that should been self assessed by the trustees and 20% income tax paid thereon. However, there is a system where the trust division of HMRC will permit rents received direct by the trust beneficiary to be declared on their own personal tax return. That does not necessarily avoid the trustees having to submit a trust tax return form SA900. However in view of the short period between your parents death, there could be a convincing case to make that the trust was not fully established, and your mother's estate was still being administered by the time father died.
• Your mother's estate may have qualified as an excepted estate for probate purposes, and benefit from abbreviated probate application process.

Turning to events following your father's death:

• Valuation of 100% of all properties required at his date of death including the 50% share owned by the trust.
• Ascertain income tax outstanding at date of death from rents and other sources of untaxed income.
• Notify trust division of termination of trust, and agree the mechanics to close their records on the matter, bearing in mind the obligation to register the trust in the first place has not yet been complied with.
• If the 50% value of all the properties in the trust exceeds £250,000, your father's estate will not qualify for excepted estate treatment and a full blown IHT 400 form will need to be completed, eventhough no IHT payable.
• As regards the termination of the trust, that will require completion of a separate IHT form 418 related to trust matters.

No doubt during the ongoing administration of the estate, taxable rents will continue to be received and directly taxable on your father's estate, until such time you assent beneficial ownership of the properties to you and sibling, prior to executing formal legal transfers into your joint names (assuming you had no chance/time to do this after your mother's death).

You and your siblings will also require personal tax advice as to your own self assessment obligations arising on receipt of estate rental income when eventually distributed to you.

All in all there are sufficient complexities here, involving a very steep learning curve which in my view, points to professional help needed from a STEP qualified lawyer.

Certainly there will be few if any forum contributors who can help you navigate the estate/trust compliance and reporting issues which arise here.

Wangeye08

https://forums.moneysavingexpert.com/discussion/comment/81906384#Comment_81906384

Thankyou - I really appreciate your very thorough response and the time taken to write it.

The rental properties have been managed by myself for some time on behalf of my parents. I don't know why they weren't all listed on the will, but they have owned all of these for many years.

My parents had an accountant who handled their finances and filed the appropriate returns, and all properties were valued buy an RICS surveyor in January. The accountant will manage the appropriate final tax returns for my parents. Neither of my parents had any other very significant assets, aside from the property. There were no ISAs or other investments and cash deposits totalled under £20k.

My brother and I have agreed to assume our final positions in so much as my brother is occupying the matrimonial home (he was living with and looking after my father prior to his death). He will assume the responsibility for maintenance and bills and I have continued to manage the rental properties, and will personally take the rental income from this as well as cover any associated bills and maintenance. Once probate is complete, I will make a ~£60k equivalence payment to him.

poseidon1

Good to hear there is an Accountant in the background, and that you have been personally assisting your parents ( pre -death) with management of the rental properties.

The accountant may or may not be familiar with trust and estate administration/compliance matters, but should (given their general training) be an asset in assisting you and your brother with the practicalities of compiling the data towards obtaining probate for the estate and winding up of your mother's trust.

Perhaps have a look at the IHT 400 together with the accountant, to see if it's viable to complete this with their assistance.