I have a client who gifted her daughter 300k 4 years ago to purchase a property in her sole name
She had a dec of trust drawn up at the time to say that on the sale of property she is owed this £300k
She has a taxable estate and is leaving bulk to her daughter as she doesn’t particularly get on well with husband
She does however want to gift the beneficial interest created by the Dec of Trust to her husband to avoid IHT on the 300k
She unfortunately has had a diagnosis and likely only has a year or two so waiving the loan to start the 7 yr clock isn’t really an option
Can this beneficial interest be gifted? Are there any IHT implications or does it pass via spouse exemption as usual? Is it a case of just inserting a clause into the Will gifting the interest or are there any further considerations/pitfalls?
Could just be a normal “I give all my interest in the property known as Greenacres to my husband”, but may depend on how things were done at the time: was it actually a gift to daughter and was there a mortgage?
My reading of this is that the daughter has a debt owed to the mother. This debt can be assigned to husband, either during lifetime, or by Will. The property aspect is somewhat of a red herring.
Is this a tenancy in common with a limit on the equitable entitlement of one party or is it a right to a share in the sale proceeds of a fixed sum? I suspect Eddie Bell’s drafting is going to capture it, whatever it is, but as he says it would be reassuring for us and you to tie down precisely what the interest is. The good news is that there is a declaration of trust so likely someone gave some thought to this earlier.
Thanks all, the sum of £300,000 was gifted to daughter to purchase property in her sole name- small mortgage again in daughter’s sole name. After the purchase completed they drew up a Declaration of Trust with another firm stating that Mum is to receive £300,000 on the sale- so its a right to share in the sale proceeds of a fixed sum. Mums not concerned with getting the money back for her or her estate and would happily forgive loan but issue is that if she does it is counted as PET and 7 year clock starts running- 7 years she does not have unfortunately.
Her main priority is not having the £300,000 be counted towards the value of her estate which is why she is proposing to gift the beneficial interest created by Dec of Trust to her husband. Gifting the sum of £300,000 outright to him to offset as I have suggested is not something she is willing to do.
My thinking has been along the lines of what @Haroon has said, just wanted to be sure I hadn’t overlooked anything!
It cannot at one and the same time be a debt and a proprietary interest unless there are 2 separate choses in action I.e. one of each type.
Without seeing the DOT it his hard to comment but if it is a debtor-creditor relationship (you seem to agree with this analysis as made by Haroon) what on earth was the purpose of the DOT: what on earth was the trust property viz. the subject of the declaration —do I dare facetiously suggest that it was a red herring?
It might have been intended and possibly could even have the status of an equitable charge but to me on the info available it sounds like one of the documents I accused a former partner of using, as was his wont, a precedent he got from the Readers’ Digest or Blue Peter based on a similar standard of jurisprudence.
What did the DOT confer on the creditor in addition to her rights inherent in that capacity? An assignment (and therefore a trust over) future property (part of any future sale proceeds) is a non-event and can only operate as a contract to assign if made for valuable consideration, so not gratuitously, although possibly if the DOT was an express integral part of the debt contract: Tailby v Official Receiver (1888) 13 App Cas 523.
My most recent post was made without sight of Eddie Bell’s latest which poses the fundamental question. The answer is very important. I suggest that it is imperative that this be, because it still can be, very cheaply resolved now rather than than left to the client’s PRs and Will beneficiaries, plus the property owning daughter, to possibly argue over after the mother’s death.
There is also some mixed nomenclature in the original post. It says 300k was gifted, but then thereafter that it was to be repayable on sale. A mortgage lender will ask for a declaration confirming the source or sources of deposit funds and the status of funds provided by others (gift or loan). Lenders take into account the obligation to repay family loans in their lending decision. What was declared to the lender in the application/KYC docs? The lack of protection by charge leads me to wonder about deliberate subterfuge.
If it was truly a loan, and bearing in mind the comments above, the “declaration of trust” could still operate as written confirmation of the debt and its repayment trigger, though of course those details should also be reflected in any assignment.
I sense some general support here that it is well worth ascertaining now what is going on, as a boring but potentially horribly impactful, matter of law.
A gift is not a debt. What is it here? Evidence after the event may be equivocal. While both parties are alive with full capacity they each have total agency, and with any necessary advice, to conclusively settle the issue. This is so much more objectively desirable that only the unavoidable human delicacies and exigencies of realpolitik and personal relationships can intrude upon.
On the future death of mother what is in her estate? A debt receivable or a property interest? If the latter a GROB, s.102B FA 1986, POAT? If not now in prospect then can this cause problems later if she occupies the property with her daughter ?
If a debt is it secured and if so what are the priorities over the daughter’s creditors, however theoretical an issue?
What if the daughter dies first? Not statistically certain but possible. Does she owe a £300k liability or does she own only part of her home? What is the value of her QRI for RNRB? What is her total IHT exposure? Does she have a surviving spouse?
You may decide to bet each way on the Grand National rather than on the nose. But if you could bet knowing in advance the actual outcome, but on condition that there would be only a very modest limit on your maximum stake, would you do? If an adviser what would you advise your client? I always advised: go for certainty at the expense of greater reward while allowing the client to be totally free to take any bigger risk that their perception of their personal comfort might permit.