What is the problem in 2024?
2. My mum’s will created a nil rate band discretionary trust that was set up on her death several years ago. No actual money went into the trust and the family home was transferred to my dad. There is a document stating the trustees have an ‘equitable charge’ over my mother’s half share in the family home. The beneficiaries are me, my dad and siblings. My siblings and I are financially secure however my dad is shortly moving into a care home and will need money to pay care home fees. Can the trust be brought to an end and the money given to dad? Whilst no money was physically put into the trust, it seems the trustees accepted an IOU from dad to repay the money later. By way of security for that debt, the trustees took an equitable charge over what was mum’s half share in the property. Now that one of the beneficiaries are in need of the cash (i.e. dad needs the money for care home fees), the property could be sold allowing the trustees to call in that debt and money be brought into the trust. The trustees can exercise their discretion to pay all (or some) of the money to dad. If all assets are paid to dad, the trust comes to an end. If the distribution to dad had taken place within two years of mum’s death, it would have been treated as if it was made under mum had made a gift to dad and there would be no inheritance tax to pay.
Unfortunately, not everyone rushed out to change their wills made prior to 2007. Now that nearly all trusts must be registered with the TRS, we find a lot of these nil rate band discretionary trusts are coming out the woodwork, with clients scratching their heads as to what to do with them.
Some common enquiries we have encountered over the last year include:-
1. My husband passed away several years ago. His will left his estate to a nil rate band discretionary trust. The trust was ignored on my husband’s death. Everything was paid to me. I’ve now received a letter from the will writer who drafted our wills that both wills created a nil rate band discretionary trust and this may need to be registered. Does my husband’s trust still exist and need to be registered with TRS? Simply ignoring a trust does not mean it does not exist. Whilst the terms of the will should be read carefully, generally these types of trusts came into existence on the death of the person who made the will. The trustees of the trust remain entitled to the nil rate band sum owed to the trust and can bring a claim against the executors of the deceased’s estate to transfer this sum to them. Equally the beneficiaries of the trust could bring a claim against the trustees, for incorrectly handling the trust.
A trust in this scenario will almost certainly need to be registered with the TRS.
"The main drawback with this trust regime is they can be particulalry complex to administer for the lay trustee, who may require the services of professionals like solicitors or accountants to assist."
THE LEGAL CORNER MAGAZINE | ISSUE 006 JANUARY '24 | KEEPING THINGS SIMPLE – WHAT TO EXPECT IN 2024 HB 28
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