I am instructed by a husband and wife who both wants to do a life interest trust Will -usual type set up leaving their half share on trust for the surviving spouse with the remainderman being the 2 adult children.
The husband, however, has raised a query, advising if he dies first, his wife may want to sell the house (with the trustees agreement - being the children in any event) and purchase a larger house with their daughter but use the funds from the house sale to do this.
Obviously, normally clients in this situation tend to downsize rather than upsize.
Can the wife even upsize as long as the capital is preserved for the Trust? Would you need some sort of Declaration of Trust in place setting out effectively 3 owners of the property, being the trust, the wife and the daughter?
Its all theoretical at this stage but conscious about the advices I am potentially giving here.
I am literally sending myself around the bend trying to work if this can even be done and if it can the potential issues that may arise on the surviving spouse’s death (wife) with the house basically being the daughter’s home.
Yes, I don’t think there is anything particularly unusual about it. A declaration of trust would record the respective interests in the new property and could be as simple or complex as you wanted.
The usual fiduciary principles would apply so if both children were beneficiaries, you would only want to do this if there was a clear path to liquidating the other child’s reversionary interest on the second death.
Presumably, if all the parties are in agreement there appears to be no reason why each of W and one or both of her daughters cannot each have a beneficial interest in the newly acquired residence.
The size of the property is irrelevant for RNRB purposes.
The RNRB downsizing provisions only apply where on W’s death she either holds no interest in a residence at that time or at that time she does have an interest in a newly acquired residence whose value at that time is less than the value of her interest in her current residence at the date of sale of the latter.
Presumably, W may also be entitled to a RNRB transfer from H.
Does the will empower the trustees to invest in joint assets?
If not, then the suggested transaction would be a breach of trust, which could be waived by the beneficiaries , provided that they are all in existence, of legal capacity and properly informed of the arrangement and its implications.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Does the will empower the trustees to invest in joint assets?
If not, then the suggested transaction would be a breach of trust, which could be waived by the beneficiaries , provided that they are all in existence, of legal capacity and properly informed of the arrangement and its implications.
My attention has since been drawn to the commentary on s.3(1) Trustee Act 2000, which appears to have slipped my mind, as it is clear from such commentary that the Act permits trustees to invest jointly with third parties.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
with ref to ’ does the will empower the trustees to invest in joint assets’.
I have looked at the 3(1) Trustee Act 2000 - and I can’t see clearly where it does permit. Or is it simply the statement ‘a trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust.’ that permits a trustee to invest with a 3rd party?
So, lets say the trustee who happens to be beneficiary with the life interest share in property, wants to sell the house and invest the trust to buy a new ‘larger’ home and needs a new 3rd party investor to fund it, this is actually permitted due to the act?
if so, this would mean the potential issue of 3rd party risk, and diluted control over the new property that the trust would then part own (which would be a partial share in the new home) - is allowed to take place as the 3(1) Trustee Act 2000 simply allows it?
The commentary on s.3(1) that I have seen does seem to indicate the provision is extremely wide, although looking at the Trustee Act 2000 again, it is s.8 that applies in relation to the acquisition of land. However, so far as joint investment is concerned, it seems to allow similar scope to s.3.
I would say it appears that provided the trustees act to ensure that the arrangement is appropriate having regard to all the terms of the trust, it would appear permissible.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Following on from Paul’s last comment on s 8 TA 2000 the Explanatory Notes to s 8 provide in part:
"42.Having acquired land a trustee must be able to deal with it effectively. Following the precedent of section 6(1) of the Trusts of Land and Appointment of Trustees Act 1996, section 8(3) gives trustees who acquire land the powers, for the purpose of exercising his or her trustee functions, of an absolute owner in relation to the land. For example, trustees will have the power to hold land jointly with other persons, have powers of sale and leasing, and power to grant mortgages in respect of land".