S creates a lifetime discretionary settlement in November 1998 and transfers her residence into it.
S is within the class of discretionary beneficiaries (“the Discretionary Class”) as are children, grandchildren etc.
S is not a trustee.
S continues to reside in the property as if it were her home, but the Trustees made no written agreement in that regard or any sort of agreement, memorandum of trustee minutes, ever.
The main appointment of capital and income clause is follows:
“The Trustees shall hold the capital and income of the trust … in favour of or for the benefit of the members of the Discretionary Class or any one or more of them as the Trustees shall in their absolute discretion at any time or times before the Closing Date (but during the lifetime of the Settlor only with the Settlor’s consent in writing) by any deed or deeds revocable or irrevocable appoint”
The ‘Closing Date’ is the 80 year perpetuity period.
S is to enter residential care imminently.
You will not be surprised that the trust has not been reported to HMRC and no 10 yearly returns have been submitted or 10 yearly charges paid. The value of the property was likely in excess of £325k in 2008 and was definitely over £325k in 2018.
- Can it be argued that the actions of the trustees (in letting S reside in the property without hindrance) and the terms of the clause set out above requiring the Settlor’s written consent in making appointments, have in fact created an interest in possession or right of residence for her (despite no Deed being executed)?
- If not, presumably the trustees now need to go cap in hand to the Revenue and report on the Ten Yearly charges and pay any Tax and penalties
- Clearly the trustees have not executed their duties properly (I will set that aside for now)
- There is also the question of a potential capital gains tax charge when the property is eventually sold
- On the plus side, if the property is outside S’s estate then this could prove beneficial with her impending care, unless the LA consider the trust a sham.
Apologies for the long post. Look forward to hearing your thoughts.
Humphries Kirk LLP