Would be interested to hear views of members on strategy to be adopted for investment and balancing interests of life tenant and remaindermen.
Deceased lady survived by husband who is 88 and active. deceased and her husband farmed her land. Will leaves NRB and qualifying agricultural and business property on discretionary trust. Value of farm assets and NRB around £2million.
Residuary estate around £10million. IIP in favour of husband. He is fit and active. Main residence around £2m. properties worth around £1.5m produce around £40k in rent net.
Cash and bonds around £7.5m.
Remaindermen are the deceased’s four daughters (not the daughters of the life tenant). IHT exposure in excess of £3m.
Trustees are struggling to agree on investment strategy in relation to income to be generated for the life tenant. The trustees in principle want to invest £6m or so in Business relief shelters such as Octopus/Time/Foresight. There is one bond or around £1.5m which shouldn’t be sold as would trigger massive tax charge. That bond has been in existence for along time and has had no capital withdrawals. There are 15 years’ worth of 5% withdrawals available.
The recommendation to the trustees is to work on the basis of giving the life tenant the equivalent of an income of around 3%. The terms of the will allow capital distributions to husband. Suggestion is the trustees use the 5% withdrawal possibility to fund a notional income of 3% (including the rent from the properties). This enables full investment of the balance to minimise IHT exposure. Remaindermen are all in agreement with aggressive IHT planning. One of the trustees thinks an income of £200k or so a year is far too excessive for the husband. He does not need the income and indeed does not need any income.
The question is whether members consider the dissenting trustee reasonable in adopting his view that paying a 3% income is excessive and is in effect diverting capital from the remaindermen to the life tenant? He does not seem to accept that in adopting a strategy of investing the vast bulk of the estate in Business Relief investments to save nearly £3m in IHT they are preserving capital for the remaindermen at a cost to the life tenant. Are the trustees permitted to take into account the needs of the life tenant and to restrict the investments to non-income producing investments where the life tenant does not require additional income.
Galloways Accounting Private Client Limited.