We’re a small accountancy practice. Occasionally, our clients will have a question on estate tax planning. Most of the time it’s pretty basic stuff but, the other day we met with a client who had a question we couldn’t answer concerning trusts.
They want to know if an executor can move estate assets into a trust without the consent of all the estate beneficiaries.
The question relates to their recently deceased father’s estate. The deceased was resident in England all their life.
Our client told us they were concerned the executor, also a beneficiary, wants to hold onto the property in the estate for a number of years before selling it. Our client wants the estate distributed as soon as possible as they want to invest the proceeds in their business. The estate mainly consists of one property in England, the father’s only residence, and about £100k in cash.
The will makes no mention of trusts. But, it does allow the executor to “let any property in my estate on such terms and conditions as will be in the best interest of my beneficiaries”.
The client is concerned this clause gives the executor scope to rent out the property from within a trust and avoid the Executor Year rule.
From what is said, it is not so much that the executor is creating a trust, but deferring the exercise of his power of sale.
Once the residue of the estate has been “established”, HMRC is likely to treat any assets remaining in the executor’s hands as being held upon bare trust for the beneficiaries (both capital and income), so that the beneficiaries will be assessable for any income tax, capital gains tax (or any other tax a future government might invent or extent to such property).
In letting the property, the executor will need to be aware of the increasing range of issues that he will need to comply with to avoid the risk of incurring financial penalties (or worse). The STEP Guidance Notes published under the heading “Property Holding by Trustees” might be useful in this respect.
If the executor retains the property, he will be a “trustee of land” and, in accordance with s.11(1)(b) Trusts of Land and Appointment of Trustees Act 1996, “shall …so far as consistent with the general interest of the trust, give effect to the wishes of (the) beneficiaries or (in the case of dispute) of the majority (according to the value of their combined interests)”. Accordingly, if the beneficiaries entitled to over 50% of the property require that it be sold, provided the executor does not consider this “inconsistent with the general interest of the trust” he should normally give effect to those wishes and put the property up for sale. Having said that, in the present market merely putting a property up for sale does not guarantee that a purchaser will be forthcoming.
Paul Saunders F
If B is absolutely entitled to the asset, either as specific legatee or to a share of residue, then there is no way the executor can settle it.
The bigger concern would be the executor simply sitting on the asset. If the estate has been administered and liabilities paid, then he has a duty to sell and distribute (or, possibly, distribute in specie where practical and powers exist).
If the power to let is just a standard term in the administrative powers under the will then it is unlikely to make any difference. There could be implications if it is built into the main provisions regarding the succession of this property, implying some intention that it be let, but that would depend on the surrounding provisions and seems unlikely.
Others may be able to provide details but I am confident that if an executor deliberately delayed the administration, they would be liable to removal or to an order to sell/distribute. Your client could also make it clear to the executor that if the property fell in value due to his unreasonable delay in selling (which is perfectly possible in the current environment), the executor would be personally liable to make good his loss.
Osborne Clarke LLP