The trustees have a lawful right of action against any person who has benefited from the estate. The intervening period is very short so unlikely to be defeated by limitation defences.
I would draft a compromise agreement reciting these facts and creating a debt or charge arrangement by way of remediation and settlement of the trustees’ legitimate claim. Obviously the other party must be someone who can be identified as a proper defendant and has the wherewithal to satisfy the claim. That party should not make a TOV for IHT as one liability owed to the trustees is simply replaced by another type.
As long as this operation does not factually defy credulity I would not expect HMRC to challenge it. It cannot be retrospective for IHT purposes but that may not matter. The trust fund will presumably be within the deceased’s NRB and although the trust will technically commence on their death the cumulation of the deceased remains fixed and may well be nil.
TRS will also be an issue. There is an argument that no express trust comes into existence until completely constituted and that this does not occur until the trustees’ claim is acknowledged and satisfied. The contrary is not unarguable but may go over the heads of the knuckledraggers who administer TRS. At any rate it seems that a reasonable excuse for late registration may subsist on the facts.
If the SS is an eligible beneficiary it may be simpler just to appoint the trust fund to him or her, if otherwise acceptable. It is too late for s.144 so it will not recoup the loss of the 2 transferable NRBs. It will be a chargeable RPT event but perhaps at a nil rate.
It would still be safer to register for TRS relying on reasonable excuse. My children were extremely keen on not seeking my advance permission to save me the anguish of the decision-making. This is not quite a free lunch. A professional should not enter into a business relationship with trustees of an unregistered trust. HMRC will presumably excuse that too but theoretically it is an ideal cheap shot much beloved of Old Mother Rapson and her boxticking pedants at The Cube, unless you are a magalithic ABS of course.
Unless (unusually) the NRBDT legacy was directed elsewhere, the couple’s Master Plan will have been that the legacy be loaned to the spouse anyway, so with luck there shouldn’t be any element of contention. After all, it’s potentially to the spouse’s benefit to have the debt reducing the value of their assets for a local authority means assessment.
In any event, if the severance was not competed (and as it’s too late for retrospective severance), it’s only the value of liquid assets in the sole name of the deceased which could fund the legacy.
When this is not discovered until second death, which is also distressingly common, it’s still the same process of retrospective documentation.
I may have been lucky, but I haven’t found any problem with HMRC accepting late-documented arrangements as valid debts, nor any problem with the TRS in registering trusts years down the line.
I wouldn’t want to secure the debt against the property and I assume that’s OK?
So I’ll just prepare a Trustees’ Resolution and a loan note and then I’ll register with TRS. Anything else I need to be doing? Thank you again.
Only a company can create a floating charge. An individual cannot, mainly because of the Bills of Sale Acts. These extend to “personal chattels” so that term excludes cash, shares and choses in action. Ships and aircraft are excluded but have their own statutory mortgage regime.
I suggest however that trustees would be better advised to play safe and not take a risk on attempting to create a security interest which is novel and remotely uncertain as to enforceability.
The tried and tested alternatives are a fixed charge (which can be created over a fluctuating body of assets like book debts or stock) or an assignment by way of charge only with express provision for re-assignment. The latter might work better for a chose in action, although if it is an equitable chose the charge must necessarily be equitable. All equitable security interests are less secure than a legal mortgage or charge but that option is not available over an equitable chose. The grantee should agree to grant a further charge over any property into which the chose may become later transformed.
As ever the trustees must have power to make unsecured loans if that is mooted (e.g. STEP 3rd Ed clause 4.7.1(i)) and if so the other terms must be such as to discharge their duty of care, subject to any exemption clause. Common sense dictates that they should identify specifically or at least broadly who might be a prospective claimant if the loan was to prove irrecoverable to any extent.
Isn’t it interesting how this type of situation comes up on the forum just when yesterday, I saw the daughter of a surviving spouse who died a few years ago and made a Will appointing her executor and sole beneficiary. There is another daughter but it seems mother had fallen out with her and mentioned in the will that their relationship had been estranged.
It transpired that my client’s father, who died in 2005, left a will appointing his spouse sole executor and giving the whole of his estate to her. Within two years a deed of variation was executed by the surviving spouse under which a property ( call it Blackacre) which was in the sole name of the husband was to be given to his wife, the two daughters and a minor grandson in equal shares. The deed went on to give the remainder of his estate into a nil rate band discretionary trust. Father and mother owned their home Whiteacre and two other properties, Redacre and Greenacre as beneficial joint tenants but the DOV severed the joint tenancy of these into TIC. Unfortunately Blackacre was never transferred to the four beneficiaries. Whiteacre, Redacre and Greenacre were never transferred into the names of the spouse and the trustees of the trust ( spouse and the two daughters) . Some years later (not sure when) the spouse, who must’ve gone to other solicitors who were not made aware of the DOV, had the home registered in her sole name. She then sold Blackacre and Greenacre so that the only properties remaining at the date of her death were her home, Whiteacre and Redacre half of these being assets of the Trust.
The beneficiaries of the trust were the spouse, her two daughters and issue being the grandson who is now over 18. My client has told me that she was not aware of the existence of the trust and was never asked to sign anything when the properties were sold.
My client, who is single without issue and her sister, who is the mother of the grandson, are not on good terms as my client thinks that she may have influenced their mother to proceed as she did. Nevertheless my client wants to resolve the matter and even though her sister may have benefited from the proceeds which the mother received on selling the properties, she is willing to reach some compromise with her sister and in the case of Blackacre, with the grandson
Leaving aside the tax issues which will have to be agreed with HMRC, it seems to me that in the case of the trust, the simplest solution would be for the trustees to appoint the trust assets, whatever these may comprise, to themselves and the grandson in equal shares. The trust will of course have to be registered for TRS. In the case of Blackacre, a separate agreement between the daughters and grandson needs to be drawn up so that the net proceeds may be shared between the mother’s estate and the three of them.
I should be glad to have any members’ comments, particularly if they have experienced a similar disaster.