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Advice requested for dealing with a Trust created in a Will

including wills and probate
Watis
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Advice requested for dealing with a Trust created in a Will

#321310

Postby Watis » June 25th, 2020, 10:38 am

My mother recently passed away. She left a Will, and my father, my sister and I are named as joint Executors and Trustees. My father, who survives her, is the beneficiary. For the avoidance of doubt, my father was still her spouse when she died.

Although the value of her estate is believed at this time to not exceed the nil-rate band of IHT, probate will nevertheless be required - some financial institutions have already requested this.

Although I don't anticipate any problems obtaining probate, the Will creates a Trust to hold the estate. This has been done to protect the assets from IHT by transferring the maximum amount up to the nil-rate band into the Trust.

The Trust period is defined as 80 years.

There is mention of a Settlement but it's not clear how we get there.

So, my question is: once probate has been granted and the estate proved, how do the Executors release the estate from the Trust so it can be passed to the beneficiary?

To be clear: I'm not expecting answers to these issues for free from this forum but I would appreciate guidance as to whether this is something the Executors can run with, or whether we need to obtain professional legal advice?

TIA,

Watis

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Re: Advice requested for dealing with a Trust created in a Will

#321521

Postby Avantegarde » June 25th, 2020, 7:19 pm

I can't answer your question, but I am surprised at your situation. In English law, anything left in a Will to a surviving spouse passes without any inheritance tax being applicable. Your dad gets the lot, automatically, with no IHT involved. He even inherits your mum's unused IHT allowance. So, when he dies, his inheritors (you and your siblings maybe) only pay IHT on any estate worth more than the value of two IHT allowances (plus a bit more of a house is inherited). I don't see the purpose of this "trust" business at all.

swill453
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Re: Advice requested for dealing with a Trust created in a Will

#321523

Postby swill453 » June 25th, 2020, 7:24 pm

Watis wrote:Although I don't anticipate any problems obtaining probate, the Will creates a Trust to hold the estate. This has been done to protect the assets from IHT by transferring the maximum amount up to the nil-rate band into the Trust.

Are you sure it's been done for IHT reasons? Another motivation might be for it not to be counted as the survivor's assets in an assessment for care home needs.

Scott.

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Re: Advice requested for dealing with a Trust created in a Will

#321554

Postby fca2019 » June 25th, 2020, 8:58 pm

Sorry about your loss. Would expect to be specified in the trust deed, and require instruction from the trustees, but is one for legal confirmation.

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Re: Advice requested for dealing with a Trust created in a Will

#321715

Postby gryffron » June 26th, 2020, 10:36 am

Avantegarde wrote:I can't answer your question, but I am surprised at your situation. In English law, anything left in a Will to a surviving spouse passes without any inheritance tax being applicable. Your dad gets the lot, automatically, with no IHT involved. He even inherits your mum's unused IHT allowance.

True now. Many people still have wills which were written before the law was simplified in this manner.

Gryff

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Re: Advice requested for dealing with a Trust created in a Will

#321723

Postby Dod101 » June 26th, 2020, 10:55 am

I would have thought that a Deed of Variation is all that is required although English Law may be different from Scots Law in this regard. The beneficiary(ies) need to agree and then it should be straightforward. That would set aside the Trust. I assume also that maybe the Trustees could transfer the assets to your father and wind up the Trust but that supposes that the Trust has been set up in the first place. A call to the solicitor who drafted the Will should be able to sort this out. As usual in legal matters I may be entirely wrong and applying common sense in legal situations does not always seem to work.

And get your father to update his Will!

Dod

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Re: Advice requested for dealing with a Trust created in a Will

#321730

Postby swill453 » June 26th, 2020, 11:04 am

Dod101 wrote:I would have thought that a Deed of Variation is all that is required although English Law may be different from Scots Law in this regard. The beneficiary(ies) need to agree and then it should be straightforward.

But the beneficiary is the Trust. How does it agree the DoV?

(IANAL either!)

Scott.

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Re: Advice requested for dealing with a Trust created in a Will

#321733

Postby Dod101 » June 26th, 2020, 11:06 am

swill453 wrote:
Dod101 wrote:I would have thought that a Deed of Variation is all that is required although English Law may be different from Scots Law in this regard. The beneficiary(ies) need to agree and then it should be straightforward.

But the beneficiary is the Trust. How does it agree the DoV?

(IANAL either!)

Scott.


The Trust must have trustees and they of course take the decision. That of course would mean that the Trust would have to be set first but surely it is not beyond the powers of a solicitor if all (the father, the appointed Executors and the trustees, who could all be the same person of course) agree. Surely that could all be done and dusted in a morning if somebody set their mind to it.

Dod

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Re: Advice requested for dealing with a Trust created in a Will

#321761

Postby genou » June 26th, 2020, 11:58 am

Dod101 wrote:The Trust must have trustees and they of course take the decision. That of course would mean that the Trust would have to be set first but surely it is not beyond the powers of a solicitor if all (the father, the appointed Executors and the trustees, who could all be the same person of course) agree. Surely that could all be done and dusted in a morning if somebody set their mind to it.

Dod


The trust is already set up: it was created by the will, and its trustees appointed by the will. There is no need for a further document. So the trustees can agree a DoV if the wish. Or they can accept the assets and then immediately appoint them to the beneficiary. Either way some further documentation is needed to do either of those things, but nothing complicated.

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Re: Advice requested for dealing with a Trust created in a Will

#321910

Postby Dod101 » June 26th, 2020, 7:50 pm

genou wrote:
Dod101 wrote:The Trust must have trustees and they of course take the decision. That of course would mean that the Trust would have to be set first but surely it is not beyond the powers of a solicitor if all (the father, the appointed Executors and the trustees, who could all be the same person of course) agree. Surely that could all be done and dusted in a morning if somebody set their mind to it.

Dod


The trust is already set up: it was created by the will, and its trustees appointed by the will. There is no need for a further document. So the trustees can agree a DoV if the wish. Or they can accept the assets and then immediately appoint them to the beneficiary. Either way some further documentation is needed to do either of those things, but nothing complicated.


No no. You miss my point. A Deed of Variation would change the Will, as in 'vary the Will'. Fundamentally you need to know who is or are the beneficiaries of the Trust per the Will and get them to agree the change. Don't go anywhere near probate until this Deed of Variation is agreed and then go ahead using the varied Will. I do not know if that can be done but I did something similar with my late Wife's estate four years ago and it worked. I do not know the position under English law but hopefully our in house lawyer CK will be along to advise.

Actually the OP said the surviving father is the beneficiary so it is not going to be difficult to set aside the Trust by a Deed of Variation (of the Will) The beneficiary (the father) will be I exactly the same position as he would have been except that he will hold the assets directly rather than via the trust.

Dod

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Re: Advice requested for dealing with a Trust created in a Will

#321925

Postby Avantegarde » June 26th, 2020, 9:19 pm

I am not getting something here. So the Will, on death, sets of a Trust with trustees who must obey the instructions of the Will. Fine. As the only beneficiary is the father, why can't the trustees simply take over all the assets, pay any IHT or debts (as any executors would), then simply give the father a cheque for the residue? Job done. Once that is done, there must be an easy-peasy way of winding up the empty and now superfluous trust so the soon-to-be-ex-trustees no longer have any responsibilities or obligations?

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Re: Advice requested for dealing with a Trust created in a Will

#321928

Postby Dod101 » June 26th, 2020, 9:36 pm

Avantegarde wrote:I am not getting something here. So the Will, on death, sets of a Trust with trustees who must obey the instructions of the Will. Fine. As the only beneficiary is the father, why can't the trustees simply take over all the assets, pay any IHT or debts (as any executors would), then simply give the father a cheque for the residue? Job done. Once that is done, there must be an easy-peasy way of winding up the empty and now superfluous trust so the soon-to-be-ex-trustees no longer have any responsibilities or obligations?


I don't disagree but that was not what the OP was asking. I was assuming that the OP had decided that that was not possible but in any case he talks of the nil rate band being transferred to the trust so the estate is up to £350,000 in the trust and the balance of the estate (if any) outside. That is messy and unnecessary if they can avoid setting up the trust in the first place.

Dod

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Re: Advice requested for dealing with a Trust created in a Will

#322018

Postby genou » June 27th, 2020, 11:58 am

Dod101 wrote:Actually the OP said the surviving father is the beneficiary so it is not going to be difficult to set aside the Trust by a Deed of Variation (of the Will) The beneficiary (the father) will be I exactly the same position as he would have been except that he will hold the assets directly rather than via the trust.

Dod


And he'd be in exactly the same position if the trustees took control of the assets and immediately appointed them to him. You are going to have a DoV, or a deed of appointment of the assets. Either way, one document. The executors are going to have to ingather the assets either way. It's six of one and half a dozen of the other.

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Re: Advice requested for dealing with a Trust created in a Will

#322420

Postby Clitheroekid » June 29th, 2020, 12:02 am

Sorry I'm rather late to the party, but this is quite a common scenario. Nil rate band discretionary trusts were a good idea before it became possible to transfer the nil rate band between spouses, at which point that particular purpose of such a trust ceased to exist.

However, there are occasionally good reasons for maintaining the trust. If the surviving spouse is likely to need residential care the assets in the trust don't belong to them and are therefore not counted as part of their means assessment.

Also, such trusts can be used to avoid the consequences of a second marriage, where the testator wants to ensure that his children take some benefit under the Will, and that it doesn't all go to his widow who then re-marries and dies intestate so that all or most of his estate ends up with the new husband. Likewise, he may have children from a former marriage that he wants to make sure derive some benefit.

However, these considerations only apply in a minority of cases, and most families don't want the hassle and expense of dealing with the trust. In such cases it's possible to unravel the trust provided action is taken within two years of the death. A Deed of Appointment is executed by the trustees, the effect of which is to pay out the funds in the trust to the surviving spouse. Under section 144 Inheritance Tax Act 1984 this has the same effect as a Deed of Variation - in effect, it rewrites the Will as if the Trust did not exist. This enables the now unused NRB to be utilised on the death of the second spouse.

Incidentally, it's extremely important that no such action should be taken in respect of the trust until at least three months have elapsed from the date of death, otherwise it could be treated as a chargeable event.

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Re: Advice requested for dealing with a Trust created in a Will

#324537

Postby effsweet » July 8th, 2020, 10:14 am

Hi all,

Apologies for butting in on the conversation, but CK's comment is of significant interest to us

Our own Wills were written in the same way as the OP's parents wills.
The value of our joint estates will attract IHT.
We reviewed our wills after the changes introduced to automatically pass the nil rate IHT band to the surviving spouse on first death.
We did not change them to maintain flexibilty after the first death because a Deed of Variation (DoV) could be made.
We were not made aware of the possibility of a Deed of Appointment (DoA) noted by CK rather than the DoV that our STEP Registered Solicitor brought our attention to in that review. We understood a DoV had to be made within 2 years of the first death.
The DoA,CK notes, needs to be made after 3months but before 2 years of the first death. (>3months <2 years)
So my question is Do the same time constraints apply to a DoV ie apply >3months <2years after the first death?
Any pointers to researching this point would be welcome.

I wonder if the OP would share with us how he (& the other Trustees) intend to proceed? We hope it goes smoothly for them & of course commiserations on their loss

Effsweet

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Re: Advice requested for dealing with a Trust created in a Will

#324542

Postby Watis » July 8th, 2020, 10:41 am

Hi effsweet.

Welcome, and no apologies needed for 'butting in' - we all learn from each other here. And thank you for your commiserations.

I've taken the advice I've been given on this thread on board and we the Trustees have not made any decisions yet. But I'm happy to provide any updates that could be helpful to others on the same path.

Watis

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Re: Advice requested for dealing with a Trust created in a Will

#324725

Postby eisman » July 9th, 2020, 12:23 am

Whilst I agree with most of Clitheroekid's post above, I must challenge one point he made:
Incidentally, it's extremely important that no such action should be taken in respect of the trust until at least three months have elapsed from the date of death, otherwise it could be treated as a chargeable event.


This refers to an historic issue known as the 'Frankland trap', which in fact is no longer an issue. The Finance (No. 2) Act 2015 amended section 144 Inheritance Tax Act 1984, such that appointments to a surviving spouse (or civil partner) can now be made within 3 months after the death and still qualify for exemption from IHT. This applies for deaths after 10 December 2014.


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