Discretionary Trust of Property - No monies to pay costs etc

As part of IHT planning, we are completing a DOV to transfer 50% of the deceased’s share of a BTL property into a discretionary trust to reduce the value of the widow’s estate to preserve the RNRB.

The property will be lived in by one of their daughters, who will be a beneficiary of the Discretionary Trust containing the property. Naturally she will not be paying any rent.

My question is, what happens in respect of the trust administration costs and general maintenance of the property (such as if a new roof were needed) if there are no monies in the trust from which to draw any funds? Presumably, a buffer of some additional cash should also be built into the trust to provide this? My thoughts are to draft a NRBDT into the WIll which will encompass the 50% share of the property, which would leave around £15000 spare for costs until the trust is wound up. Naturally this doesn’t solve the situation long term, but it solves it for a while, at which point it might be the beneficiary moves out and the property is rented out.

This leads to my next question though of what happens if you have a DT with no cash flow for administration costs and property maintenance costs? Can the beneficiaries, or the surviving widow agree to put forward those monies equally without tarnishing the trust in any way? I know that a settlor should never advance funds for things like this (if I recall correctly this is because it creates another settlement) but presumably other parties (who are not the settlors) can pay costs if they wish to?

Many thanks

You can find a discussion around this in the STEP Journal – “Sole Concerns, Part 1” – issue 3 of 2020; and “Sole Concerns, Part 2” – issue 1 of 2021

Back issues are available to view on the STEP website using the “Knowledge” drop-down

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

Thank you Paul. I read your articles and suffice to say, will build in monies into the DT to reach the NRB to plan for costs.

Many thanks