Inherited Property Bought in Trust But Now With Debts

Jewelscollectingdust

I wonder if anyone here can clarify our position in this situation - it’s a slightly odd situation for this board - but I don’t know exactly where to put it

Around 15 years ago - I purchased my aunts council flat - I saw it as an investment as obviously it was purchased at a discount price - The legal documents indicate it’s a deed of trust document and there is also a will but property remains in my aunts name.

My aunt has a son that at the time was living overseas and we never thought he would return to the uk - but a few years ago he did exactly that so has now made the UK his home again

There is no family estrangement though - we have a good relationship

My aunts Will - indicates any money and personal possessions be left to her son with the exception of the flat which was left to me as I was the person who paid for it - part of the reason I did it was to free her from paying rent every month

All this is fine except that I do know she has accrued debt with the local council relating to repairs due on the flat - she didn’t want these mandatory repairs done but the council ofcourse and understandably did them anyway as it affected other properties in the block - on agreement with them she pays a nominal amount - something like five pounds a month on debts running into many thousands and also ever increasing as council like to undertake work with some regularity every few years

What I am unsure of is what happens when I finally inherit the property - do the debts stay with the property or not ?

user1977

You didn't purchase her flat, she did. Presumably you gifted her the money to do so? We don't know what this deed of trust says.

In general though, if she has any debts when she dies, those need to be settled from her estate. So whether that affects the bequest of the flat depends on what the rest of the estate looks like. But there is no principle that you inherit both the asset and the debts which relate to it.

Keep_pedalling

It is likely that the LA has a charge on the property which will need to be paid back on the sale of the property. You can check with the land regigistry to see if there is one. There is also the possibility that you may never inherit it as she may no longer own it by the time of her death.

I am not sure how a deed of trust fits in here as she is the only person who could purchase the property and it appears she is the sole owner.

GrubbyGirl_2

You have left yourself in a very vulnerable situation. If she ever needs care in the future once and cash she has runs out Social Services will put a charge on her property to cover care costs. When she passes the property will be sold to cover those costs. What makes it even worse for you is that of her will states you get the property and son gets the rest, if the property no longer exists the son will get everything including any balance from the sale.

Time to talk to solicitor to see if it is possible to take possession of the property now and let your aunt live there rent free though depending on how old she is it may still be considered as deliberate deprivation of assets. Good luck, I don't envy you

mta999

You could consider putting your own charge on the property to cover the amount owed under the deed of trust but obviously you would need to talk to a solicitor about the practicalities of doing that

UKTaxHelper

Everyone's on the debts here, but there's a tax angle no one has raised. If that deed of trust really does make you the owner behind the scenes, you don't inherit the flat at all, it's already yours. That matters when you sell, because there's no reset to the value at her death and the gain runs back to what was paid 15 years ago.

mta999

Yes I believe that is true and a good point - it will not benefit from being her main residence and get the associated cgt relief. She can't leave it to you in her will as it is already yours, even though she has the legal title at the land registry

In the fullness of time after her death you will need the DOT to show the land registry in order that the property can be transferred into your name

SDLT_Geek

If the beneficial interest is held by a different person from the legal interest then the trust needs to be registered with the Trust Registration Service: https://www.gov.uk/guidance/check-if-you-need-to-register-a-trust

poseidon1

I am in agreement with @Keep_pedalling. It is likely the council debt is not only already secured on the property by way of a charging order, but maybe increasing to the extent your mother is falling behind on routine annual service charges.

The only issue therefore is whether or not your position has worsen by way of potential CGT on your eventual sale in future, if the terms of the trust do not preserve access to your mother's private residence CGT exemption during her lifetime. Of course this does assume the property has registered a meaningful capital gain from the time of purchase.

To give you a view of any possible CGT exposure, you would need to supply the redacted wording of the operative trust clauses.

From this I should be able to see if some form of life interest trust was created by you, with your mother as primary beneficiary. I would also expect to see both you and your mother as trustees of this arrangement.

In the meantime you should be checking the land registry for evidence of the Council having already secured their debt, and to the extent that debt maybe increasing.

deb64

You bought your aunts council flat using dubious tactics to get the discount you were not entitled to.

The Law of unintended consequences has now come to bite you on the bum.

As even though you put up the cash for your aunt to buy, with the promise of leaving it to you in her will, it had to be in aunty's name to get the discount, but she retained all the obligations for maintenance (via the council).

Your best option would be to give auntie the cash to pay off the outstanding bill (or charge on the flat) now to save likely interest being added whilst outstanding.

LA flats/maisonettes are always a risky buy due to big maintenance bills you may have to pay.

Can't comment on the tax implications but could be just a messy and costly.

mta999

That is a bit harsh. The aunt was perfectly entitled to buy the property at discount and finance it any was she wanted - including money on loan from her nephew

The nephew was also entitled to secure the loan anyway he wanted including via a deed of trust or charge on the property

As you said, it would have been better to put a charge on the property because that way it remained the aunt's main residence and thus not liable to cgt on any increase