I am dealing with an estate which contains a right to occupy for the surviving spouse of the testator with a discretionary trust in remainder. At the date of death, the surviving spouse did not reside in the property, she also lacks capacity & is currently in care. Therefore she is not able to take up her occupation. Relevant wording as follows:
'I give my house known as xxxxxxxxxxx to my Trustees on trust on the following terms:
My trustees shall permit my wife xxxx to live in the house free of charge so long as she wishes
When the occupant has ceased to live in the house my trustees shall hold it as part of my discretionary trust at clause xxxxxxx’
I am keen to secure the RNRB however if the right to occupy is deemed to be constituted & an interest in possession subsists then it is my view that we cannot use s.144 to appoint out of the discretionary trust to secure the relief.
Do you think that the mere transfer of the asset to the trustees creates the interest in possession or is it the physical occupation of the property that triggers the interest in possession?
Clearly my preference is that if she is not in occupation or able to take up occupation then no interest in possession subsists and we can unravel the clause to secure the RNRB.
On the basis of the wording used, this is not a right to occupy, but an entitlement to live in the property.
I draw the distinction as “occupation” does not necessarily require a beneficiary to live in the property in question - they can “occupy” via a rent paying tenant.
The property is given to the trustees on the basis that they may “permit” the widow to live there. It is not a case that the property is given to the trustees and the widow given a “right” to live there.
I am inclined to the view that the trustees may decide on the facts that the widow should not be offered the opportunity to live at the property. I see no reason why such a move should not be accepted for all purposes as the equivalent of the widow ceasing to live in the house, so that the property will fall into the discretionary trust.
Any such decision should be supported by a formal trustees’ resolution.
However, if it is considered that the right to live at the property can only be extinguished by the widow, then it is likely that an application will need to be made to the Court of Protection for her to disclaim or vary the entitlement so that the property falls into the discretionary trust.
Mindful that if the route adopted does not achieve the desired effect there could be significant financial consequences for the parties, it would probably be a good idea to obtain the opinion of Chancery counsel setting out the steps that should be adopted.
Read IHTM16137. You can probably view the failure to take up occupation as disclaimer by conduct so that, under s. 93 IHTA, the interest for the surviving spouse is treated as though it never subsisted, and the property is instead held in the discretionary trust (which can be wound up so as to get the benefit of RNRB).