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bigduckontax, Accountant
Category: Tax
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In 1999 my grandfather created two Trusts, one held an investment

Customer Question

In 1999 my grandfather created two Trusts, one held an investment bond, the other a life policy. Each year the 5% tax free withdrawal was taken on the investment bond and paid the life insurance premium. There was no other income on either Trust. A solicitor (Mr X) was named as one of the Trustees. The Trust provided that the potential beneficiaries could be my grandfathers children, his grandchildren and great grandchildren. It then provided that the current beneficiary was my mother who was entitled to a 100% share. Arguably during my grandfathers lifetime she could of received income from the trust with the investment bond but not the Trust with the life policy. In November 2005 I replaced my mother as the current beneficiary entitled to a 100% share. I was also appointed as a Trustee in 2011.
In 2011 my mother passed away, predeceasing my grandfather. The solicitor Mr X was the executor under my mothers will. IHT was payable on her Estate but there was no reference to the Trusts.
In 2015 my grandfather died and I applied to Mr X to collapse the Trusts and pay the capital to me.
Mr X passed this to one of his co partners to deal with and he concluded that the Trusts should have been included at their value in 2005 as part of my mothers Estate.
My first question is should the Trusts have been included in my mothers Estate?
On the assumption that they were omitted who are HMRC going to issue demands on for a) the additional IHT and b) any interest and penalties.
I am also being asked to sign as the beneficiary an indemnity to the benefit of the Trustees or more specifically to Mr X, and im not totally sure that I should sign it. There would appear to be several conflicts of interest going on in respect of the solicitors.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. The Gov UK web site in essence says: 'For most types of trust Inheritance Tax is due when you make transfers that total more than the Inheritance Tax (IHT) threshold of £325,000. You work this out by adding up the value of any transfers (based on the loss in value to the settlor’s estate) and any chargeable gifts made in the previous 7 years by the settlor. Inheritance Tax is due on everything above the threshold.' Thus if the transfers exceeded 325K then IHT was payable on the transfer. Was this done, or was the trust created below this value? Trust law and tax is exceedingly complex and some guidance can be found here: HMRC will proceed against the executors and administrators of the estate and, possibly, in the longer term seek recovery from the beneficiaries. Do not sign that indemnity. Go to another independent firm of solicitors to seek guidance and handle this matter for you. I do hope that you have found my reply of assistance.
Customer: replied 1 year ago.
I don't think you have replied to my question. My grandfather survived seven years and therefore it does not effect his estate. My mother from the date the Trusts were set up through to November 2005 was the 'current beneficiary'. She dies in 2011 and the solicitor dealing with her estate did not include the trusts. I'm now being told they should have been included in her Estate at the value of the Trusts when her interest in them ceased in November 2005. My question is the Trusts form part of her estate or not? I also believe although not sure that HMRC will issue demands on the Trustees and not the executors, and hence my further question regarding who is responsible for the further liabilities
Expert:  bigduckontax replied 1 year ago.
Yes they do and should have been included in the estate. HMRC will go after the Trustees and the trust if the correct IHT declarations were not made on decease and revenue lost. They can even go beyond the personal representatives in certain circumstances to recover moneys improperly distributed to beneficiaries. As I told you in my original answer, you need an independent solicitor to advise you in this situation.
Customer: replied 1 year ago.
Thank you for the reply. Could you please kindly confirm the legislation that rules the Trusts should be added to my mothers estate and the reasoning. Clearly she had no control over what happened and was removed as the current beneficiary 6 years before she passed away. Thank you
Expert:  bigduckontax replied 1 year ago.
I re-iterate that this is a matter for a solicitor.
Customer: replied 1 year ago.
I'm sorry but I was only asking what you had based your reply that it should be brought into the estate on. Must be based on something but if you cant answer then could you kindly forward the original question to a legal expert. thank you
Expert:  bigduckontax replied 1 year ago.
I have already requested a re-allocation and that awaits approval by moderators. I have also given you the guide to the appropriate web site on this matter in my original answer.