Declaration of trust with 0% and 100% splits

Trusts Discussion
1

I would very much appreciate your views on the following scenario which has just crossed my desk.

A married couple purchased a property as joint tenants and rented it out. They later signed a Declaration of Trust where they agreed to sever their joint tenancy and hold the property in trust for themselves in the proportions of 0% for Party A (a higher rate tax payer) and 100% for Party B (his wife, a standard rate tax payer). This arrangement enabled party A to exclude any element of the rental income being assessed for income tax. There is a separate marital property which they own as Joint Tenants.

Party A has now died suddenly just 2 months short of 7 years after the above deed was executed.
His will has made very large pecuniary gifts to his children from a previous marriage that would require the sale of a property to fulfil.

I can only assume the plan was to revert to 50% shares once Party A had retired and likewise to convert to equal tenants in common on the marital home which would have provided sufficient property in the will to cover the gifts.

However, now the martial home would pass automatically to his spouse as joint tenant with right of survivorship. But does Party A’s 0% beneficial equity share in the rental property now exclude this from being sold to fund the two gifts (even if that was the inferred future intent)?

Many thanks.

2

Yes. A had no beneficial interest in the rental property at the time of his death following the Declaration of Trust. A’s estate therefore has no right to any part of the rental property. Indeed A’s spouse could have called for the trustees to transfer the legal title to her at anytime post the Declaration.

An “inferred future intent” is somewhat meaningless.

Malcolm Finney

3

Thank you Malcolm for confirming this. I have found your responses to other posts to be very informative.

Due to the lack of other assets of significant value it is likely there will be insufficient to fully cover the pecuniary gifts, leaving no residual estate for the spouse.