Beneficial interests in property

Trusts Discussion
1

I would appreciate forum members’ views on the following scenario:

Mum (M) died in 2016. Her will appoints her daughter (D) and son (S) as executors. In the process of administering the estate, D and S discovered that M was not the beneficial owner of a rental property registered in her name, so D and S are holding as trustees. We originally believed, based on information provided by the wider family, that around £14,000 had been taken from a savings account owned by Grandmother (G) without her knowledge by Uncle (U) and that U provided the rest of the purchase price. My original advice was to transfer the property into the joint names of G and U as tenants in common in unequal shares.

Unfortunately U suffers from schizophrenia and is now proving to be rather volatile. U asked D and S to transfer the property into the names of his sons, but, when it was pointed out to him that this would potentially be a deprivation of an asset and that there would be CGT consequences, he changed his story and said that it was never intended that he would have a beneficial interest in the property and that M ‘always knew’ the property was intended for his sons. There is no documentary evidence of any agreement as to the beneficial interests in the property, or indeed, why the property was registered in the name of M in the first place.

D and S are reluctant to accept U’s word (mental capacity is obviously an issue and there is the fact that he misappropriated G’s funds). This is causing D and S a lot of stress and they want to discharge their responsibilities as soon as possible as this has been going on a long time and family relations are suffering.

What would forum members do under the circumstances? Would you:

  1. Transfer the property to U and G as tenants in common, regardless of what U is now saying and bearing in mind that this will cause a rift with U and his family;
  2. Transfer the property to G and U’s sons; or
  3. something else (which I can’t think of!)

(Please ignore the position with regard to property income and income tax).

Many thanks
Lorna Sansom
Blandy & Blandy LLP

2

For whose benefit was M holding the property during her lifetime?

To whom was the net rental income paid and who declared it for tax?

If U did not benefit in anyway during the lifetime of M then perhaps he thought (whether correctly or not) that he was gifting the property at the time he provided the funds (perhaps for his sister’s benefit and thereafter for his own children?). Do S & D think that M believed during her lifetime that she did beneficially own the property

Does the rest of M’s estate go to S & D or is it more complicated?

Is G still alive and if so, what does she think?
What do U’s sons think - are they still minors?

Maxine Higgins
Citroen Wells

3

I would want to check Mum’s past bank statements etc to see how she treated the rent she was receiving. If there is evidence of payments, whether regular or irregular, to U and/or his sons I would suspect that to represent Mum’s view of beneficial ownership. If no such evidence, I would consider Mum to have treated the house as being hers, presumably following a gift to her from U, unless U and/or his sons can produce evidence that she held as nominee and that their claim has not been barred by limitation.

In any event, if your clients are sure that G contributed part of the purchase price other than by way of gift, I would consider that G is entitled to that proportion of the property.

Kevin Mullen