I am dealing with a life interest trust which has ended on the death of the life tenant. The partners of this firm are the trustees. I have reported the ending of the trust to the Revenue and there is no IHT to pay because the estate of the life tenant including the value of the trust is an excepted one.
My concern is what happens if further assets are discovered by the executors of the life tenant later on (who are incidentally not the partners of this firm). This could potentially result in an IHT liability for the trustees as well. Am I overthinking this? Is there anything I can do to protect the trustees before I distribute the trust fund to the remaindermen?
Thanks in advance for your help.
Brain Chase Coles Solicitors
The situation appears to be analogous to the unfortunate position of executors who, having distributed the estate, become liable for further IHT as a result of a failed PET of which they were previously unaware. That sort of case is specifically referred to in HMRC’s manuals (IHTM30044) where HMRC state that, as a matter of policy, they will not pursue personal representatives who have made the fullest enquiries it is reasonable for them to have made in the circumstances to discover lifetime transfers. One would expect HMRC to adopt a similar approach in a case such as that which you refer to. To get the benefit of this concession however your trustees will need to make the fullest enquiries it is reasonable for them to make to ensure that there is no further IHT for them to pay, which may have cost consequences. I note that those enquiries may need to include enquiring about lifetime gifts, not just ensuring the death estate was properly reported.
Before distributing the funds the trustees should obtain an appropriate indemnity from the remaindermen. Your trustees may want to consider demanding from the remaindermen some security in respect of the covenant to indemnify, although that sometimes proves controversial. Further or alternatively your trustees have the option of keeping something in reserve until they are sure that no further tax is likely to be payable. Again however that can be unpopular with remaindermen. The approach depends on the perceived risk. No-one said the job of a trustee was easy or risk free! In part, this sort of problem explains why so many professionals choose to offer trust services via the medium of a corporate entity.