Probate, executors who lack capacity and property sale

NedS

We are in the process of applying for probate, and removing mum as an executor given her lack of capacity (PA14). Thanks for the advice on this aspect earlier in the thread.

I am now turning my attention to the IPDI trust created in dad's will, allowing mum to reside at the property, and a right to income from the trust once the property is sold.

The issue is that mum is a co-trustee with myself, but does not have the capacity to act. Having done some research, I understand that my PoA (EPA) for mum does not extend to me stepping into her shoes to fulfil her role as a trustee, so we must remove mum? and appoint another/replacement trustee due to her lack of capacity to act as a trustee. The will/trust does not make any mention of who can/cannot appoint new/replacement trustees or specifically allow or prevent any such actions. Any pointers or advise on how we go about doing that / the process. I'm happy to do it myself if that is possible, but we do have a local STEP qualified solicitor we could use if a solicitor is required. My wife would be the logical person to appoint as replacement co-trustee (as long as that is permissible). For information, the will was written in 1993 (in case that is relevant).

I am aware that I will need to register the IPDI trust within two years with HMRC and close the trust once it ends, and that I must complete a tax return for the trust if it is liable for any taxes.

NedS

Replying as much for my own benefit, but doing a little more research shows that an incapacitated trustee who is also a beneficiary cannot be removed/replaced without permission from the Court or Protection, as detailed in the Trustee Act 1925, section 36(9).

So it looks like I need to apply to the court of protection to remove mum as a trustee, and I can appoint a replacement trustee under 36(1) of the above act once approved by the court of protection.

Edited to add: from further reading of the legislation, I think I am correct in thinking I can appoint another trustee to act with me in relation to property under Section 36(6)(b) as (6B)(b) would be satisfied. Happy for any experts in the field to comment on that.

poseidon1

In approaching this quandrary you are in with a solicitor, I think it important to break down the problem in two separate parts

Selling the property is top of the list and is something you are already in the middle of, so you did not want it jeopardised unnecessarily.

Your mother cannot be the second trustee for selling purposes but also you can't replace her as you point out. However you can add another additional trustee to act alongside you purely for the purposes of effecting the sale in satisfaction of the Form A Restriction so that the purchaser for value obtains a good receipt from you both and not concern themselves of the trust circumstances that sit behind you (the trust overreaching doctrine).

Since this is purely a technical trustee appointment for conveyancing purposes, probably best if it were the solicitor or a trust corporation they might retain for the purpose , taking on this role and then stepping aside ( resign) once sale complete. Alternatively there are firms that offer this as a standalone service.

https://www.mounteney.com/land-law-titles/second-trustee-service/

The second part is the property has been sold, but in seeking probate to ratify the trust's exsistence and take control of the trust monies, you now have an incapacitated co trustee ( your mother), who cannot simply be remove because of the strictures of Section 36 (9) Trustee Act 1925 you identified below -

https://www.legislation.gov.uk/ukpga/Geo5/15-16/19/section/36/1997-01-01/data.xht#commentary-c772175

In this regard you now have no option but to seek the leave of the court for the final removal and replacement of your mother as discussed below - the article also refers to the overreaching doctrine to effect the intermediate sale of the house, prior to removal of your mother -

https://journal.step.org/step-journal-decjan-2013-14/three-routes-removal

All in all a particularly unfortunate combination of complex circumstances, but once you have had opportunity to discuss with an appropriate solicitor and armed with this additional information, hopefully not insurmountable.

NedS

@poseidon1 wrote:

In approaching this quandrary you are in with a solicitor, I think it important to break down the problem in two separate parts

Selling the property is top of the list and is something you are already in the middle of, so you did not want it jeopardised unnecessarily.

Your mother cannot be the second trustee for selling purposes but also you can't replace her as you point out. However you can add another additional trustee to act alongside you purely for the purposes of effecting the sale in satisfaction of the Form A Restriction so that the purchaser for value obtains a good receipt from you both and not concern themselves of the trust circumstances that sit behind you (the trust overreaching doctrine).

Since this is purely a technical trustee appointment for conveyancing purposes, probably best if it were the solicitor or a trust corporation they might retain for the purpose , taking on this role and then stepping aside ( resign) once sale complete. Alternatively there are firms that offer this as a standalone service.

Agreed, and I'm really clear on that process now, so many thanks to LR and yourself for getting me there.

@poseidon1 wrote:

The second part is the property has been sold, but in seeking probate to ratify the trust's exsistence and take control of the trust monies, you now have an incapacitated co trustee ( your mother), who cannot simply be remove because of the strictures of Section 36 (9) Trustee Act 1925 you identified below -

https://www.legislation.gov.uk/ukpga/Geo5/15-16/19/section/36/1997-01-01/data.xht#commentary-c772175

In this regard you now have no option but to seek the leave of the court for the final removal and replacement of your mother as discussed below - the article also refers to the overreaching doctrine to effect the intermediate sale of the house, prior to removal of your mother -

https://journal.step.org/step-journal-decjan-2013-14/three-routes-removal

Again, thank you. I had come to the same conclusion from my reading of the TA 1925 legislation, and have read up on the process of applying to the court of protection.

Until that process of replacing mum as trustee under S36(9) TA 1925 is complete, what restrictions may I encounter in trying to set up and administer the trust?

Will I be able to open a trust bank account to move the monies held in trust into?

Will I be able to open other BS investment (trust) accounts to earn some interest income?

Will I be able to make tax returns for the trust to HMRC?

I understand that I will be able to register the trust and to end the trust registration once mum as passed, as the sole competent trustee, so I guess it's more about managing the monies. Mum has sufficient capital from her share of the property sale to fund her care and is highly unlikely to ever need the income from the trust, so investing it to generate an income is not an urgent priority.

Is it an option to sit tight and do nothing in the first instance and see how mum's care progresses (and knowing the answer to the questions above may better inform that decision). If she passes relatively quickly and before I begin the S36(9) TA 1925 process, at that point the trust ends, and I only have to register and end the trust registration, and complete any tax returns for which the trust may be liable.

poseidon1

So some practical admin matters once property sold and solicitor sitting on the trust proceeds.

If they assidous in discharging their responsibilities they should not be releasing the trust monies to you without probate having been granted and court sanctioning the replacement trustee ( your wife?).

So those trust proceeds remain on solicitor client account for the duration.

Once the trustee replacement process complete, your next challenge is finding a bank that will allow you to open a trustee account. Inconceivable as it may sound, pretty much all the mainstream high street players have long since abandoned this market leave just a small handful of small participants - see thread below

https://forums.moneysavingexpert.com/discussion/6630998/metro-trust-bank-account

You will see from the thread that Metro Bank is likely the best bet, or if you can get a professional introduction to Cater Allen ( owned by Santander), also a good option.

As to earning building society interest, there are small handful of societies that offer trustee accounts but their current interest rates range from the pedestrian ( 3.75% from Mansfield ) to the downright ridiculous ( 0.8% - Bath BS).

The most competitive accounts for trustees at the moment as indicated in the thread are NSI's range of Income and Guranteed income bonds - see below

https://www.nsandi.com/products

You mention that you feel your mother unlikely to need access to trust income initially, so no urgency to generate any.

You are wholly incorrect and have no discretion or power at all to delay generating trust income that is then paid out to her ( net of tax) whether she needs it or not. Her right to trust income is by law absolute and your LPA requires you to act in her best interest at all times.

The court in granting you leave to remove your mother as trustee, would take a very dim view of allowing her removal if made aware of what you are considering. You should understand why Section 36( 9) was enacted in this regard.

As regards HMRC compliance, once you register the trust as a taxable entity, you will be issued with a trust Unique Tax Reference, and placed into the trust self assessment tax return system.

Of course if your mother dies before you complete the trustee removal process, then the trust termination occurs automatically and you avoid future trust compliance by registering the trust and its termination simultaneously.

Whether there would be any trust/ estate income in the interim would depend on if the solicitor client account generated any interest.

Therefore up to you if wish to defer the entire process and ' run down the clock' depending on your mother's current state of health and life expectancy.

NedS

Thank you. I am aware of the difficulty in finding trust banking, and had already identified Metro Bank as one of the few offering trust accounts. Likewise, I had already identified a number of building societies offering trust savings accounts, and had seen the thread mentioning NS&I.

@poseidon1 wrote:

You are wholly incorrect and have no discretion or power at all to delay generating trust income that is then paid out to her ( net of tax) whether she needs it or not. Her right to trust income is by law absolute and your LPA requires you to act in her best interest at all times.

The trust (dad's will) specifically grants the trustees the power to "invest and change investments as if they were beneficially entitled" and "this power includes the right to invest in interest free investments or other non-income producing assets".

I'm not sure how it is in mum's best interests to seek to earn a relatively small amount of interest income that she does not need, which after tax, solicitor fees and statutory financial advice could easily amount to a negative return? I'm still at the stage of trying to establish what work is involved, if it is something I am able to undertake myself, or how much it would cost if I hand the whole lot over to a STEP qualified solicitor and tax accountant. But I take your point, and once I have all the information to make an informed decision, I may take a different view.

Just so I'm clear, when I'm acting wrt the trust, I'm acting as a trustee, not as mum's PoA as the EPA gives me no authority to act wrt the trust? Hence why mum must be replaced with a suitable replacement trustee on authority from the court of protection in the first place, otherwise I could just use my EPA powers (which I know I cannot). It can sometimes get confusing wearing multiple hats (executor, trustee, PoA, son)

Believe me when I say that nothing would please me more if mum did not have dementia and was capable of managing her own affairs, but sadly that is not the case. I'm just trying to figure out how to best navigate the situation that has been placed before me. At this point, given the apparent complexity and length of time it is likely going to take to resolve, I am not confident that mum will live long enough to see an outcome. I hope that I'm wrong, but that is probably just the sad reality of the situation.