Life interest Will trust and Equity Release

Looking through the previous posts it seems this question has been asked before, but I am not entirely clear of the answers!

In our scenario husband “H” has died and his Will left his share in the property on a life interest trust for his wife “W”. The clause wording is :

(a) In this clause the “Trust Period” means the period between my death and the death of my wife.

(b) I give free of tax to my Trustees my beneficial share “my Share” in (or in the future proceeds of sale of) the freehold property at *** or such other property which my wife and I co-own as our principal residence at the time of my death “the Property”

c) My Trustees shall hold my Share on trust to sell it (subject always to sub-clause (d) below) and to pay the income from it or from the property which currently represents it to my wife during the Trust Period

(d) During the Trust Period and subject to my wife’s reasonable compliance with the terms of (e) below my Trustees shall not (except with her written consent) take any steps to sell or obtain the sale of the Property or to disturb or restrict her occupation of it or require it to be shared with anyone else or to obtain any rents or profits from it but they shall join with her in selling it if she makes a written request to that effect

(e) My wife (whether or not currently residing in it) shall pay all outgoings in respect of the Property and keep it in good repair and insured comprehensively and to its full reinstatement value with insurers approved by my Trustees and in the joint names of herself and them

(f) Any money held by my Trustees under this clause may be invested in any way permitted by law and in particular in the provision of a residence for my wife and my Trustees shall comply with any written and reasonable request made by my wife to exercise their powers in the way mentioned in this sub-clause and in deciding what terms (if any) to impose in doing so shall have regard to the terms imposed by the forgoing sub clauses

(g) When the Trust Period ends my Trustees shall hold the Property then the subject of this clause as accretion to my residuary estate in accordance with clause 7 of this my Will

The Will was made towards the end of the year before the Equity Release Mortgage (ERM) was taken out. There is no reference as to whether the gift is subject to or free of mortgage and no evidence (save for what the wife may say) as to any agreement/understanding between them (if any!) as to how the ERM is to be applied to the respective shares of the Trust and the surviving spouse.

So, to confirm :

  1. From the previous posts, the consensus appears to be that the gift into the Trust takes effect at the date of death and so is of the deceased H’s share in the property less his share of the ERM at that date, with W’s share then bearing the continuing interest of the ERM until repayment, unless there is any evidence of an alternative agreement or the ERM paperwork confirms otherwise?

  2. If that is correct would it be necessary/prudent to document that position/agreement formally signed by the Trustees and the Life Tenant, confirming the values for the property, the outstanding ERM, H’s shares of both of those and the agreement/arrangement as to how the ongoing interest is to be applied and what is to happen if there is a deficit in the property value at the death of W eg whether it is to be paid from the rest of her estate or revert back to be paid from H’s share of the property?

  3. If yes to 2. above what document should that be (W is one of the Trustees) eg Trustees Resolution?

Many thanks in anticipation of your replies.

Caroline Strathon

Whilst a gift of property will be free of IHT unless otherwise stated, the reverse is the case where the property is subject to a charge – the legatee takes it together with the liability.

However, where there is a joint liability, one needs to look to the terms of that liability to understand the consequences of the death of the first debtor. Whilst, in most cases, I would expect the “benefit” of the charge to pass to the survivor in joint account that cannot necessarily be assumed. A careful readying of all the documents relating to the equity release scheme should clarify the position.

Paul Saunders