Letter of Wishes

Trusts Discussion
1

I have clients who are unmarried and wishing to remain so.
They have had 2 children together and have no other children.
To qualify for RNRB, they wish to leave their share of the home direct to the children on first death with a letter of wishes regarding the occupation of this property by surviving partner.

I have drafted the following and would be grateful for any comments on it.

"In my Will dated XXX, I have left my share of my residential property , currently ADDRESS, to my two children.

It is my wish that during lifetime of XXXX, they:

(a) Shall not sell the said Property without the consent of XXXX;

(b) Shall allow XXXX to occupy the Property providing (s)he complies with any obligations imposed by (c);

(c) Shall be free to impose such conditions as to the payment of insurance, outgoings and expenses of and relating to the Property as they think fit;

(d) If at any time XXXX shall request in writing they shall sell the Property jointly with XXXX and shall apply the whole or any part of the net sale proceeds in the purchase of another property whether freehold or leasehold and shall hold the same upon the same wishes contained in this letter of wishes as if references to the Property in this clause were a reference to the replacement property;

(e) In purchasing a replacement property in accordance with the previous power my children may join with any person in purchasing an undivided share of land."

The letter of wishes will obviously be signed.

Thank you all in advance.

2

I take it that reference to a gift of their share of the home means that the home is held by them as tenants in common.

Does this not create a secret trust, with the consequent IHT implications?

If not, then there will be CGT implications as main residence relief will not apply to the surviving partner’s occupation of the deceased’s “share”.

Paul Saunders FCIB TEP

Independent Trust Consultant

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PO Box 421, Wilmslow, Cheshire SK9 0EX

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3

If it does create a secret trust, that will be an express trust, and so it must be registered with the TRS. Presumably the trust comes into effect on death, so the registration should take place immediately the first death occurs (and then again immediately the second death occurs).

Julian Cohen

Simons Rodkin

1 Like
4

Can you point me in the direction of TRS information ?

5

https://www.gov.uk/guidance/register-your-clients-trust

6

Yes the property is held as tenants in common.

CGT issue agreed and noted.

Would this avoid creating a secret trust - the amendments are in bold italics with a fictional address and name included for (hopefully) ease.

To: My Children

In my Will dated 5th September 2021, I have left you my share of my residential property , currently 12 New Town, Any Place, (the Property).

I understand I cannot restrict your discretion or determine the way in which you exercise your ownership of the Property. However, I set out below my wishes with regard to how you deal with this during the lifetime of Albert Jones.

It is my wish that during lifetime of Albert Jones, they:

(a) Shall not sell the said Property without the consent of Albert Jones;

(b) Shall allow Albert Jones to occupy the Property providing (s)he complies with any obligations imposed by (c);

(c) Shall be free to impose such conditions as to the payment of insurance, outgoings and expenses of and relating to the Property as they think fit;

(d) If at any time Albert Jones shall request in writing they shall sell the Property jointly with Albert Jones and shall apply the whole or any part of the net sale proceeds in the purchase of another property whether freehold or leasehold and shall hold the same upon the same wishes contained in this letter of wishes as if references to the Property in this clause were a reference to the replacement property;

(e) In purchasing a replacement property in accordance with the previous power my children may join with any person in purchasing an undivided share of land.

This letter is not intended to create any legally binding direction or obligation on you.

You must use your own discretion and I express this wish for your guidance only.

It should be borne in mind that this letter may be overtaken by future events and I wish for you to use your own judgement to decide how matters should be dealt with in the future.

Thank you all in advance - once again

7

Given it is an outright gift to the (presumably adult) children, and the letter is not intended to be in any way binding, I would rewrite, rather than tweak, the wording intended for executors/trustees - e.g. replace the words “discretion” and “power”. I would also change “they” to “you” as the letter is presumably to them.

For example, instead of “I understand I cannot restrict your discretion or determine the way in which you exercise your ownership of the Property”, you could say, “You are now the owners of half of [the property] and, within the constraints of co-ownership, free to deal with it as you wish, but I hope that during the life of your mother/father, you will honour the following wishes.”

See also “hold the same” under (d) and the reference to a power under (e).

You may also want to include some wording explaining that the property was bought to provide a home for them and their spouse, which might provide spouse some clearer legal protection under s.12(1) TLATA.

Andrew Goodman
Osborne Clarke LLP

8

The more a Letter of Wishes looks like an addition to or modification of another document or transaction the more likely it is to be treated as an integral part of it with consequent similar substantive/evidential effect and access to disclosure for relevant entitled parties. My approach was to draft these things as if they had been written by the client with maximum informality and the minimum of legalese e.g. the non-binding incantation. If you do not intend to make the document legally binding why would you want to draft it, or have it drafted, in the kind of lawyer-speak designed for a judge to understand?

Jack Harper

9

Why not speak to the children and explain to them what you are doing and that you will rely upon them To allow the survivor to continue to live in the property without forcing a sale. After all as the letter suggested would have no legal binding, what is the point of it? Besides the CGT issue, there is of course the risk of one or both of the children becoming bankrupt or be faced with a divorce and this forcing a sale of a share.

Patrick Moroney
Bwl solicitors