I am dealing with a right of occupation which was set up in the Will of H. The property was given to the trustees to hold on the terms of the trust.
During the trust period (defined as 125 years) the trustees shall allow W to occupy the property as her main residence, and the right of occupation ends if the occupier dies, marries/enters into a civil partnership, fails to meet her listed obligations, or ceases to occupy the property as her main residence.
W is still alive but lived in a care home at the date of death of H, so has never occupied the property since H died. The property sale is due to complete on Friday.
The remainder interest applies subject to the right of occupation, and directs the trustees to hold the trust fund on trust for C1 and C2.
It appears to me that W never actually took up her right to occupy the property as, by her living in care, the right effectively ended when H died. This would mean that the property advances immediately to the remainder beneficiaries and they take the sale proceeds.
The circumstances suggest to me that there are no trust formalities to deal with, e.g. TRS for the Will Trust, CGT return upon the ending of the life interest otherwise than on the death of the life tenant etc.
They also suggest to me that the remainder beneficiaries were absolutely entitled to the trust property on death, and any gain is attributable to them personally for CGT purposes.
It is refreshing to see such apparently comprehensive drafting of the events in which a ROO terminates. Whether the condition of “ceasing” to occupy covers your set of facts is a matter of interpretation of the text as drafted. One interpretation might be that W still retains the right, given the non-occurrence of any other conditions, until her death as she might in theory leave the care home and assume occupation.
If you can support by cogent evidence that her circumstances are such, and have been at all times since H’s death, that this is and was to all intents and purposes practicably impossible, the favoured interpretation may well be that the gift of the ROO was impossible of fulfilment so that the gift failed incipiently. It is desirable that C1 and C2 go along with that, although it is not in itself conclusive, so a challenge can be ruled out and their written consent obtained to estop them and their successors. HMRC have a potential interest so would need to be convinced that a court would hold the gift to be subject to a condition, albeit implied from the termination of occupation consequences, that was incapable of performance ab initio. You just need to retain the best evidence of that.
If W was already living in care and there was no likelihood of her taking up occupation, I agree with the general analysis.
I suggest that the executors/trustees might make a written resolution setting out their understanding of the situation and appropriating the property to C1 and C2 before sale.
Alternatively, W might complete a formal disclaimer (effective under s.93 IHTA 1984 if already outside of the 2 year period under s.142 IHTA)
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals