Trust investment - duty to remainder beneficiaries


(Lorna Sansom) #1

I would like to learn forum members’ views on the following scenario:

Mr X dies leaving a life interest in the marital home owned 50/50 to his second wife with remainder to his children from first marriage. Widow and remainder beneficiaries are trustees. Trust has very standard provisions stating that, if the life tenant requests it, the property can be sold and a replacement property purchased with the proceeds. Widow (in early 70s) wants to move to a McCarthy & Stone retirement property. It appears that M&S are now offering 999 year leases and it is possible for the trustees to own a share of the property. The remainder beneficiaries are concerned that retirement properties are difficult to sell and that resale values are not good and therefore investing in such a property may prejudice the remainder beneficiaries. Widow thinks her needs should be paramount although there is no clause in the Will stating that her needs should be put above those of other beneficiaries.

If you were a trustee, would you refuse to purchase the property?

Please note that I do have alternative ways of sorting out this problem, so don’t need to hear alternatives. I am just interested in what members think of the situation and whether retirement homes are suitable trust investments.

Thank you

Lorna Sansom
Blandy & Blandy LLP


(Andre Davidson) #2

Article from the BBC https://www.bbc.co.uk/news/business-41200686 Half of new-build retirement homes sell at a loss on re-sale.

This one from the telegraph https://www.telegraph.co.uk/property/retirement/buy-retirement-home-will-go-value/

This one focuses on McCarthy & Stone property https://www.thisismoney.co.uk/money/mortgageshome/article-5454265/My-parents-buying-retirement-flat-McCarthy-Stone.html

The terms of the will often provide detail on the powers that the trustees can exercise and if they can exercise any discretion to favour one group of beneficiaries over the other.

A life tenant has certain rights including the right to ask the trustees to sell the property and buy another with the proceeds as you state.

I believe the remaindermen’s eventual interest should never override the Life tenant’s rights during her lifetime ( can’t disadvantage the Life tenant just to preserve value for the remaindermen. There may be good reasons for move. It’s a balancing act).

In this scenario I’d look for alternatives first keeping the retirement property as a last resort.

Andre Davidson
Finantium


(Paul Saunders) #3

Although the remaindermen’s interest should not override the life tenant’s rights, trustees are required to maintain a balance between the two sets of beneficiaries.

Whilst I have not seen a McCarthy & Stone contract/lease recently, I recall they used to provide that upon a re-sale (which M&S controlled) M&S was entitled to something like 20% of the contract price. This could somewhat skew the income/capital balance.

If this would apply to the present proposition, the remaindermen’s concern is real and, if I were one of the trustees, I would want to carry them with me. It may be that the trustees are intending to adopt a “whole portfolio” investment policy, so that the rest of the trust fund is invested for capital growth to try and balance the potential capital loss.

In making a property purchase, trustees should obtain advice from an appropriately qualified professional to the effect that the proposed purchase is a suitable investment for trustees. If, as implied in the original posting, the remaindermen are likely to challenge the trustees’ decision to buy an M&S property for occupation by the life tenant, the trustees should make sure they have such a written opinion/recommendation to support their decision.

Paul Saunders


(john.donald) #4

From very recent experience I was involved as an Executor in the sale of a Macarthy and Stone retirement property in a popular Edinburgh district and much to my surprise it realised a substantial profit over a three year period of ownership.However the purchaser was very keen to acquire it so this may prove to be the exception rather than the rule.
In addition in Scotland Macarthy and Stone charge 1% of the sale price.

John Donald