Discretionary Trust vs Inter Vivos Life Interest

I’ve been asked to look over two Discretionary Settlements (created Dec 17) one for Mr and one for Mrs. The trusts comprised of their respective shares in their home (whole value approx £350k). Both trusts included Settlor and Spouse as potential beneficiaries. Alongside the trusts were letter of wishes which stated that Settlor and Spouse could remain living in the property for the remainder of their lifetimes.

The LR formalities were never dealt with at the time. Mr & Mrs have very recently sold the trust property and purchased a new property in their joint names.

It is clear that the trusts were drawn up on a care fee planning basis as opposed to an IHT planning basis, but surely an Inter Vivos Life Interest would have been better? Their estate is not taxable.

My query is how we go about dealing with the existing trusts and the new property? Do we appoint the Settlor’s interest in the old property to spouse and then create an Inter Vivos LIT for the new property? The solicitor who dealt with the original trusts informed HMRC of their creation so i will obviously need to flag up that the trust property has been sold.

Rebecca Austin
JWP Solicitors