Trustees Of An Estate

margaretclare

Sloughflint, I think you've explained it very well. The deceased husband was, when drawing up his will, obviously thinking of his widow's needs primarily and then, as a secondary consideration, what's to happen to the house after her.

I think the crucial sentence from your post above is 'Even though your mother is not using the home she is entitled to have a benefit from her husband's share' - in fact, not a share, a benefit from the whole of the house's value!

The house could therefore be sold and the proceeds invested for whatever the widow may need in time to come. Or it could be rented out (which seems to be a more usual option in these times of difficulty in selling).

She does not know what her needs may be in time to come, how long she has to live and what may happen in that time. It's a bit too simple to say 'she's happy and settled in her new home'. She may well be, but I repeat, she does not know what her needs may be. None of us has a crystal ball - well, mine's a bit cloudy anyway, needs to go into the repair shop as DH puts it. She may well be feeling extremely generous towards her children at the moment, but this is the only capital she'll ever accrue for herself at her age, no longer the possibility of a well-paid career etc.

It sounds perfectly clear to me that the interest in the property is for her lifetime and need not end just because she's moved into sheltered accommodation. I think Sloughflint understands it too.

JohnnieW

I think you are getting a little mixed up her Sloughflint, and the thread has been unnecessarily complicated, and would just like to go back to the questions the Op has raised.
First of all, if mother had a life interest in the trust which only at this stage contains the house, she is only entitled to live in the house. She is not entitled to the house itself, nor any part of the proceeds as Margaretclare said.
When the house is sold, the solicitor is right, mum has the right to the income from the proceeds and not the capital (ie the proceeds of the house)
Sometimes however, the trust has a clause which says that the trustees can appoint capital to the life tenant (mum) if they choose to do this.
The tax implications which I assume the solicitor is referring to is
a. Income tax. Mum has to pay income tax on the investments. ie dividends, interest, etc. Probably mimimal if the house is only worth £100k.
or more likely
b. Inheritance Tax.
Mum can relinquish her life interest. ie give the money to the children.
If she does that it will be treated as a lifetime gift for inheritance tax. Even though she does not own the house, she is treated for IHT purposes as owning it and therefore disposing of it when she relinquishes her life interest.
However, if this is all she has more or less, IHT will not be an issue in any case.
I think this was the question asked by the OP ie What are the tax implications and is the solicitor right, but if not, just post again, but if I were you, I would listen to your solicitor who appears to be right on this issue rather than advice from the boards.

sloughflint

Thanks for your post JohnnieW. I did get mixed up this morning thinking that the trust was for just half the house rather than the whole house but have I mixed anything else up?

I didn't think Mum was entitled to the contents of the Trust, just a benefit from it.I hope I didn't convey that too.Perhaps I didn't express myself well enough.

IHT didn't seem to be an issue.Income tax would have been negligible so not worth worrying about so....

When I read OP's input,I thought her objective in posting was trying to understand the tax implications of a way around the Trust and in particular trying to get the funds given to the children now ( from a later post).

Surely there has to be a way around this, the Solicitor has mentioned something about tax implications?

My mum is happy and settled in her new home and would like the property to be sold and split between her children.

So if my interpretation of the motive of posting is correct, I was wondering about the potential tax issues of gifting directly/winding the Trust.
Was my fear re CGT correct there?

Mum can relinquish her life interest. ie give the money to the children.

That's interesting to know. I've learnt something here.So no other issues other than IHT (if applicable)? What about the deprivation of assets then? Does that become an issue?

If I have gone on a tangent,it might have its uses for someone out there if not the OP.I hope so.
Any chance you could elaborate a bit on the consequences of relinquishing the life interest?

You are absolutely right that Mrs Tidyfinance should get clarification from her solicitor but sometimes it helps to get a feel of a situation from elsewhere.
This place is ok as long as people are prepared not to take everything written as gospel.

localhero

If the house gets sold which is what the OP seems to want, then as JohnnyW states, for IHT purposes the value of the house would be a lifetime gift.

If the mother in law has no other assets of their own, then there would not be any tax implications.

If the OP's mother in law is entitled to the income from the property, then she would be taxed and means tested on that income for care fees.

Therefore the real issue here I can see, is the possibility of the local authority claiming that by ending the life interest, then they have deliberately deprived themself of an income.

I would certainly ask for a clarification from the solicitor, as it seems what you've been told is unsatisfactory.

JohnnieW

Hi Sloughflint, Yes, I get confused about a lot of things at my time of life too! You are not alone.
I think the Op was asking if the money could be got out of the trust too, but am not sure.
Forget the income tax, as it is mimimal, but the implications of winding the trust up in terms of the IHT is the same as mum relinquishing her life interest.
Basically, mum is saying "I don't want the life interest in the money/house any more, the children can have it. Therefore, it is a gift for IHT"
In terms of the deprivation of assets. Mum has life interest in the property, or the capital if the property is sold. Some local authorities get a bit sniffy about life interest trusts, and they have been known to put charges on properties with life tenants on them. That is why, STEP always recommend discretionary trusts for care home fee planning, so that there is less likelihood of a challenge.
From that point of view, therefore, if mum gives away her life interest, it is possible that the LA could stop funding. I am not saying that this will, and always happens, but it is a possibility.
I didn't touch upon this, as I did not think the OP was asking about this, and am always careful to keep the two issues of IHT and care home fee planning separate, as quite often on the boards, the two get confused.
There will be no CGT to pay when the house is sold, as the PPR exemption extends to a trust.
I think I have answered your questions and the OPs, but if not feel free to ask again.

sloughflint

Thanks for your reply,JohnnieW. I'm still kicking myself for assuming that the property had been jointly owned/ half the property for so long in the thread. (Sorry again Mrs Tidyfinance).

If IHT was ever going to be an issue, I think it would have been so regardless of whether OP's Mum relinquished the life interest or not.
Many years ago, these trusts were IHT efficient as the share ( or whole!!!:wall:) of the property wasn't counted in the surviving spouse's estate.
HMRC successfully challenged this (the life interest aspect was deemed to create an interest in possession) and ever since then therefore the whole property started to be included in the second person to die's estate.

So whether or not OP's Mum relinquishes her life interest or not, if the size of the Estate is large enough, IHT will be due.

So it seems, as I feared the important issue is the deprivation aspect.

kunekune

FWIW, I was thinking of a variation of the terms of the trust, not of the will. If the trust stayed in place, would that make any difference?

localhero

Sloughflint,

I think when considering a course of action all the practicalities should be considered, so you are quite right in raising the care fees as an issue which any decent solicitor should have spotted.

And as far as IHT is concerned, if the OP's mother in law has got a large enough estate in her own right, then it could actually be beneficial for her to relinquish her life interest.

Perhaps they were the tax 'implications' the solicitor was thinking of.

sloughflint

As you can see localhero, I did a little bit too much assuming in this thread.:wall:
When I read this sentence:

Surely there has to be a way around this, the Solicitor has mentioned something about tax implications?

I assumed/guessed that the solicitor was saying no easy way round this....negative tax consequences otherwise ....and so started to try to imagine what these could possibly be, hence my input in the beginning.

Rereading post 1 again, it doesn't look as though the solicitor has made any suggestion to give up the life interest so maybe the estate is not that large.

the advice has been that the proceeds from the sale would need to be invested and could not be split between the five siblings until her mums death.

But who knows?

These 'tax implications' need to be explained to Mrs Tidyfinance again and I certainly hope the deprivation of assets aspect will be discussed too.

tidyfinance

Everyone's input is greatly appreciated - thankyou.
'Mrs Tidyfinance' is meeting with the Solicitor next week, I/we'll let you all know the outcome.
Thanks again.:T