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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25486
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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In 1997 I set up an Interest in Possession Trust and my wife

Resolved Question:

In 1997 I set up an Interest in Possession Trust and my wife and I granted a 999 year deferred lease of 35 years duration which was initially valued at transfer at £150,000 on my freehold home (currently valued at £1,500,000). We also gave the Trust a plot of land, valued at transfer at £250,000. Both these figures were professional valuations.

My wife died in 2001 and I remarried in 2012. I had Parkinson's Disease diagnosed in 2003 and now wish to build a smaller house with disabled adaptations on the plot I gave away and I have already gained planning permission from the local authority. I also wish to regain possession of the lease.

Can the Trust GIVE both the lease and land back to me as the donor or do I have to pay the Trust the current market value of both the lease and the land? The trustees and principal beneficiaries all agree that they wish me to have the lease and the land back. As regards XXXXX XXXXX de minimis has been claimed up to the end of this tax year.
Submitted: 3 years ago.
Category: Law
Expert:  Joshua replied 3 years ago.

Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

Joshua :

May I ask who the remaindermen were in the trust please?

Customer:

The principal beneficiaries are my 4 adult children. The trust document says, " the wider class of beneficiaries includes their children, grandchildren and remoter issue (and their spouses)

Joshua :

Sorry for the delay in reverting to you.

Joshua :

Was the life interest set up for your wife or you or both of you please - i.e. does the life interest element end on your wifes passing or the second of your passing away?

Customer:

Neither I nor my first wife were entitled to any benefit from the trust. Can the beneficiaries surrender their rights and return the gifts (lease and land) to me and my second wife and what is the tax implication?

Joshua :

Thanks - who are the life beneficiaries of the trust?

Customer:

The four children ( aged 55,53,50 and 45)

Joshua :

Thank you - there is an element of confusion for me here. Above you have kindly informed me that your 4 children are the remaindermen of the life interest trust. It is not possible for them to also be the life beneficiaries. Could you kindly clarify? A IIP trust will have one or more beneficiaires who have the benefit of the trust for their life and then remainderment who inherit the trust assets usually absolutely after the death of the life beneficiary.

Joshua :

I'm about to log off for a couple of hours. If you could kindly clarify the above I will endeavour to come back to you with a full response later this evening with your permission.

Customer:

Many thanks I will respond to you shortly.

Joshua :

Thanks - I look forward to hearing from you. I should be around again after 8pm but obviously you can check back anytime later or tomorrow as convenient to you.

Customer:

There are 3 trustees including myself and the 4 children are the life beneficiaries - and I believe the remaindermen are their children, grandchilden etc althogh there is no mention of the term "remaindermen" in the Trust deed.

Joshua :

Thanks for the above.

Joshua :

Remaindermen is quite likely not used in the trust document itself - it simply refers to the beneficiairies that acquire the trust asset after the life of the life beneficiairies. Based on the above information I regret I have one final question. Could you confirm the exact wording for the class of beneficiaries that inherit after the life interest ends. You mention your "childrens children and grandchilden etc". Could you provide me with the exact wording as this will be crucial

Customer:

Under the heading in the trust deed "Life Interest Trusts" the document says:

Customer:

1. Yjr Trustees shall hold the Trust Fund upon trust, subject to the provisions of thos deed, dor the Principal Beneficiaries in equal shares.

Customer:

The capital and income of the Share shall be held in Trust for or for the benefit of such of the children and remoter issue of the Life Tenant (nominated as my eldest child) at such ages or times, in such shares , upon such trusts and in such a manner generally as the life tenant shall appoint.

Customer:

Dear XXXXX

Customer:

I am entertaining guests for dinner so will look at this chat tomorrow morning. Many thanks for your help so far. Ken

Joshua :

Thank you. Before I comment any further with your permission I must post some words of caution. The scheme you have entered into is very technical in that it has been designed to mitigate IHT on your death which by definition the government do not make it easy to do. From what you say I understand the scheme that has been proposed but it is very dangerous to provide advice without sight of the trust deed and title documentation and given the figures involved and the potential CGT and IHT liabilities that could ensue it is crucial and I do mean crucial that you do not make any decisions without seeking professional written advice from ideally a STEP qualified accountant or solicitor who has had the benefit of being able to review the trust deed fully and the trust documentation and valuations and provide you with worked calculations to evidence each option. However this said, based on what you say I would comment as follows.


Your proposal to wind up the trust will have some hurdles and challenges based on what you say. You appear to have established a deferred lease settled into a life interest trust with an overriding discretionary power of appointment to one of your son’s children and remoter issue.


Accordingly the first hurdle is how you wind up the trust. Your children are only from what you say the life beneficiaries and you would either need the agreement of the remaindermen beneficiaries (your sons children and remoter issue) or there would need to be an express power in the deed to allow additional beneficiaries to be added to the class of potential people that your son can appoint to.


As an alternative if all the life beneficiaries agree and your son who has power to appoint out has one or more adult children who also agrees, he could appoint out to that child who could then gift back the trust property you desire to you. However this could have some significant capital gains tax implications. This is because the trust would acquire the lease asset at a very low price for CGT purposes as the lease would have very little value at the outset being deferred for many years. If the lease is then surrendered back to you this can be treated as a deemed disposal at market value of the acquisition of the property by you which could result in a potentially large CGT liability. Holdover relief would not be available on the transfer from a grandson to you.


The final observation I would make is that even notwithstanding the above issues which are in themselves significant, even if you went ahead, you would then have the property added back into your estate for IHT purposes and may have to pay IHT on everything above either £325K or £650 depending upon whether you still have your wifes nil rate band available to you to use. Either way your estate could end up with a large tax bill which you like spent some substantial monies to avoid in setting up this scheme.


To my mind based on what you say winding up the trust appears to present some significant challenges which may be too burdensome to justify. As an alternative, I would be examining the trust powers to see if it is possible for the trustees to sanction the building of a new house for you and undertaking that you can live in it as long as you wish – in other words an assignment of their life interest in respect of the new house you propose. This is in principle possible although presents its own potential tax issues though of a more manageable nature and may enable you to do as you wish within the trust structure. On the basis that all of your children are the life tenants, providing at least one of your children outlived you this should secure your future in the new home.


I am sorry the above is such a long post and not all of it is positive by any means but I hope within the limits available to me without sight of the trust documents in question, the above is of some assistance.



Is there anything above I can clarify for you?

Customer:

Many thanks for your comprehensive answer. I do expect to pay a chunk of tax in due course! You have given me some new avenues to explore particularly the one concerning using an adult grandson and I will be consulting with the children shortly. Once again, many thanks for your expert advice.

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