I have a number of life interest trusts where the only asset is either a property or share in a property. I am just curious as to what steps other members take in dealing with the administration of these trusts assuming life tenant is remaining in occupation. Check insurance annually and possibly check no other person in occupation. But what about state of the property? Is a professional trustee expected to check this?
Part of the reason I am raising this query is that often life tenants can take exception to requests for information as they possible forget the rationale behind the trust and see the whole exercise as instrusive. There are also issues sometimes with life tenants providing insurance details.
Can members give an indication as to whether they retain these trusteeships and if so, what other steps they take?
Brewer Harding & Rowe
If you do have any response to your question I would be interested, as I have often pondered the same thing!
WMB LAW SOLICITORS
I am sometimes horrified at the lax attitude of some solicitors to this subject, when they are trustees of such a trust. If it contained investments, they would no doubt have annual reviews etc, but when it comes to a property, reason seems to go out of the window, and often the file is put away after the administration of an estate with this type of trust, without proper consideration of the trust and how it should be managed.
This is then regretted when there are issues arising years down the line, which should have been anticipated and addressed at the outset.
My advice is that ideally there are say 3 yearly inspections by a surveyor with a report as to condition and a review of the insurance cover.
If the only trustees are family members, one can advise this, but if they want to avoid the expense, they could instead do an inspection themselves which they record, and a review of the insurance, provided they are advised as to their potential liabilities in the absence of professional assistance.
Insurance should be in the names of the trustees, with evidence being obtained as to renewals and terms of cover.
At the outset of the trust a licence agreement should be entered in to setting out the terms of occupation-as the trustees are entitled to insist on by virtue of s13 of TOLATA 1996. Ideally this is signed before the beneficiary goes into occupation, but often on death trusts the beneficiary is already in occupation, so that is not feasible and can make things harder. However the trustees should insist on an agreement being signed, so that it can be referred back to if an occupier objects.
Some of the issues raised by Justin are touched on in my article in the October 2018 STEP Journal “House of the rising funds” (I claim no responsibility for the title!).
The STEP Guidance Note on Property Holding by Trustees (https://www.step.org/guidance-notes) might also be instructive.
I am currently penning a further article for STEP, which will more directly address issues Justin raises.
Trustees are under an obligation to ensure that they act in the best interests of all the beneficiaries, which includes the life tenant and any remainder beneficiaries. A professional trustee should be considering whether there is suitable insurance in place to protect the capital value of the assets under their control should the unforeseen occur. They should also ensure that they are comfortable that any maintenance required to the property is being undertaken to keep in in an appropriate state, and that occupation is as per the terms of any licence that may be in place.
One of the issues that needs to be considered when acting for an illiquid trust in a professional capacity like this is how the professional trustee is going to be paid for its services in acting as trustee. Together with the requirement to at least consider the insurance position, whether the cover obtained is suitable and adequate, and whether the general state of repair of trust is appropriate, the trustee is also under a duty to comply with numerous compliance obligations that will be placed on it for acting as a trustee, which include compliance with the current regulations under 4AMLD and AEOI. There is also the expected requirement under 5AMLD to register the trust with HMRC and maintain an up to date record, which would require the trustee to at least periodically consider the information held to ensure that it is up to date.
The question then arises as to who is going to pay for these services.
Stevens & Bolton
Thank you all for the detailed responses so far!
It is reassuring to hear that others take seriously the risks that are associated with these trusts. However, the issues that I often encounter are (a) the surviving partner/spouse/co-owner who has a right to occupy/life interest sees the involvement of the Trustee as intrusive and (b) funds are not often retained to meet the ongoing administration costs.
In some instances there may well be a moral duty for a professional trustee to remain in place, for example second marriage or perhaps dissension between life tenant and remainder beneficiary. However in cases where there is family harmony and perhaps the Trust arrangement is in place to protect a 50% share of capital from care fees, I am having difficulty reconciling why as a professional Trustee I would want to remain involved given the potential risks - especially highlighted in Paul’s report.
Lack of cash and inability to meet fees is not a reason to avoid legal duties.
In terms of fees I would consider these a capital expense generally and in the absence of a provision in the Will allowing retention of cash from the estate on account of these fees, often end up with a Trust without cash. In those cases I would seek agreement from the Trustees to “roll up” the costs until sale. Do others take the same approach or have any alternative approach?
Brewer Harding & Rowe
The life tenant often is willing to lend money to fund fees - a better alternative than being told costs have to be paid, and the house would otherwise be sold, with smaller cheaper accommodation being provided! Alternatively the reversioners can be asked to do so, which can be tricky if the interests are not indefeasible.
All solicitors should tackle this at the Will drafting stage. The simplest and best alternative to a property trust with no cash, which clauses in themselves often lead to problems due to changes in circumstances and inadequate drafting, is a life interest in residue and power to advance capital. That way cash can be reserved and the rest of residue released to the spouse (if appropriate).