Life interest trust help

mossy26

Hello, my father died last month and left a life interest trust in his will, allowing my stepmother to live in the property and benefit from any income from his savings. They were tennants in common, and I will inherit his 50% of the house and savings on her death.

I am executor, and his close friends are trustees.

His estate was uncomplicated, an income bond, and 50% of the house, so I intend to DIY probate. Is this feasible or does the fact that he left a trust complicate things?

His trustees are also contemplating DIY trust registration, but using a solicitor to transfer the property deeds into the trust name, but are a little unsure of the process. I haven't been able to find a step by step guide for trustees online, and am wondering if I should advise them to just use a solicitor for the whole process.

Does anyone have any advice or experience with any of the above?

RAS

The property registration is less on an issue than HMRC registration of the trust which must be done within 2 years of death. You can certainly do the latter yourself.

Hopefully others here can advise on the income bond.

poseidon1

It would be helpful to provide values for the house and income bond, to get an idea whether you can use the excepted estate approach to apply for probate online - see link below

https://www.gov.uk/valuing-estate-of-someone-who-died/check-type-of-estate

Going forward, and with regard to the continuing trust, is the income bond a fixed rate bank/ building society product or a life insurance related investment bond?

If its a bank savings product with one of the ordinary high street providers, the trustees may encounter problems retaining it after you obtain probate . The conventional banks have largely withdrawn from providing saving products ( and bank services generally) to these types of trusts.

Furthermore, if after registering the trust the trustees wish to avoid onerous annual self assessment tax obligations on the trust income ( trust interest is taxable on the trustees at 20% - soon to increase to 22% - before passing to the beneficiary), they may wish to arrange for all trust income to be mandated direct to the beneficary who will then be personally responsible for self assessment thereon. HMRC may nonetheless demand the Trustees submit nil tax return SA900s for a while.

Given these complexities, I hope the amount in the income bond is going to be worth all this continuing hassle in the years to come.

mossy26

Thank you for your reply.the income bond is with ns&I, and 75k, and the property is worth 585k, and they were tennants in common.

The trustees have been losing sleep over this, and I would like to help them find a stress free solution, perhaps registering the trust through the solicitors who helped my dad write his will would be the best solution?

Keep_pedalling

Would his widow be willing to give up the income in return for a lump sum? This could be achieved through a deed of variation. Just having half a house in trust is simple, but the savings complicates things for everyone.

mossy26

We weren't aware that that was an option, how would that work? Would the entire savings bond need to be given as a lump sum? I know my father wanted to provide her with some extra income, whilst ring fencing some capital for me and my son to inherit, and this is what his solicitors suggested, so I would need to find a solution which meets his wishes as closely as possible. I don't think he realised how complicated this would be for his trustees though, and I feel a responsibility towards them , and their stress levels!

Keep_pedalling

As an example you could agree to split the £75k 50% to her and the remainder between you and your son. The advantage to you is that you get some cash now and she has a lump sum instead of a small amount of income (trust accounts don’t pay a great deal of interest)

Mands

https://forums.moneysavingexpert.com/discussion/comment/81915917#Comment_81915917

NS&I are currently paying just over 3% pa on Income Bonds. So that 75k is going to generate a little over 2k per annum.

That's not a lot of money for quite a lot of work. A lump sum in exchange for reducing the workload seems sensible. What sort of age is she?

mossy26

Thank you. I will mention it to the trustees and see what they think. I think they were planning on keeping the savings with NS&I otherwise and hoping that they could arrange for any income to be paid directly to my stepmother, if this is possible and not too complicated.

mossy26

https://forums.moneysavingexpert.com/discussion/comment/81916107#Comment_81916107

She is early 70's and not in great health. It does sound as though this is a sensible option in that case, it would likely benefit her more to have extra cash now and definitely reduce the trustees workload. Thank you.

poseidon1

I am in 100% agreement with all those proposing that you and your stepmother remove the income bond entirely from the trust leaving the trust as a non income producing entity ( in the eyes of HMRC) merely holding a half share in the house only.

The way this would work is that you both execute a single deed of variation whereby you each agree to give up your respective income and capital entitlements from the bond in trust, for a fixed capital cash payout from the bond to you both.

If ( for example ) you both agree to say a 60:40% split in favour of your stepmother, she receives £45k to invest in whatever way she pleases ( including tax free isas) and you £30k. Importantly for the trustees, they are relieved from the hassle of having to deal with a troublesome and small income producing trust asset, that really does not warrant the effort.

If this option appeals to all concerned, best get it done before applying for probate.

Right now it appears the entirety of your father's estate benefits from the spouse exemption with none of his nil rate band of £325k utilised at this point. In executing the DOV in the manner suggested, it is read back as if it were an instruction in your father's will ,with the result that the capital sum to you reduces the NRB accordingly. It is best this is fully reflected in the process of obtaining probate.

As for the HMRC registration of the trust, this takes place after probate has been obtained, it is a relatively benign and straightforward online process you could undertake on the trustees behalf rather than the solicitor - see guidance below

https://www.gov.uk/guidance/register-a-trust-as-a-trustee

As for registering the trustees' trusteeship of the property on the land registry, probably best this is undertaken by the solicitor, after you have obtained probate assuming you decide to undertake that function as executor.