I’m the Trustee for the Settlors children based overseas of a UK Discretionary Trust comprising property and substantial assets + a 49% Share in an Ltd with excess shareholder funds currently available due to no dividend being paid since the Settlors death in 2022.
Can these funds be used to pay Legacies.
Estate has a small IHT liability No other Debts.
Settlor left funds in his current account now reduced after Estate costs primarily to pay the Legacies.
Estate Solicitors now saying insufficient in the residuary Estate to pay the Legacies.
Does this sound correct ?
The relevant parties can agree whatever they want.
The funds would presumably have to be distributed to the children who could then meet the executors’ liability. Would be sensible for the legatees to agree that the payments are in settlement of their rights against the estate.
If the residuary estate is property, which can then be distributed as a result of the legacies being met externally, you might have to consider whether SDLT is an issue.
Thanks for your reply.
This is my dilemma. One of the Legatees I’m not representing, is taking two of the Execs to Court for non payment of his Legacy. Trust Solicitors are saying that shareholder funds in the Ltd cannot be used and that there’s insufficient in their Client account where they are holding Trust funds to pay out. Frankly I’m baffled. I was involved in the drafting of the Will and it clearly states that funds can be used from the Settlors companies to settle Estate liabilities. Moreover, I wrote to the Estate Solicitors some months ago to clarify what the Trust consists of and they replied immediately that it was property etc as I stated in my original post.
My Clients are minors, hence why the Settlor appointed me as a Trustee.
This all sounds too complicated to be resolved in this forum: not least the trust beneficiaries cannot agree to anything if they are minors.
If you are the trustee then presumably the trust solicitors are acting for you and need to explain their reasoning to you. If they can’t do that to your satisfaction, then you may want to take a second opinion.
Yes, the Trust Solicitors do represent myself as Trustee on behalf of the minors .
I agree , just thought I would see if it was a simple yes or no.
I’m aware that the Trust cannot be involved in the day to day operations of an Ltd. Just can’t understand why the shareholder funds cannot be used.
I will certainly write to them again , although they have maintained the same position for two years that the residuary estate only consists of what they are holding in their client Trust account.
Unless there are undistributed profits in the company’s balance sheet, which could validly be paid out as dividends to all shareholders (not just the deceased), the shareholder funds can usually only be distributed on a winding up of the company.
Whilst there may be an alternative of, say, creating a new class of redeemable shares, this may be a complicated procedure the incidental costs of which might make it a non-starter. However, that will be a matter for the directors of the company to consider, and not either the executors or the trustee.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thanks Paul
This was my understanding.
Just to complicate matters, there’s only one Director, who has lost mental capacity. Furthermore, he is an exc of the Trust. Three Execs. One of them wishes the Director to be removed, the other is refusing. The one who is refusing, has manipulated the accounts to show minimal dividends.
I can see that there’s likely to be some very serious litigation required as this is a very high value Estate.