Loan Trust Investment Bond

Trusts Discussion
1

I wonder if anyone can assist.

My client’s mother who is in her 90’s recently liquidated a Loan Trust Investment Bond. The funds have been distributed amongst her 4 children. My client believes she is not allowed to benefit from these funds ( she has benefitted over the last 20 years)

They now have a problem as she has depleted her assets and needs care at home. The family are looking to arrange equity release on her home to cover future care. They need to make some modifications to the home in order to qualify for the equity release.

They are wondering if the 4 children can loan some money to their mother and they will be reimbursed when the equity release money is issued. They also wonder if the loan could cover paying for her care in the shorter term.

Many thanks

Collette

2

Yes they can lend it. I don’t think GROB is an issue because it’s likely only limited to the cash she receives and that will be in her estate anyway.

If she died while still owing money to the children, that debt likely isn’t deductible for IHT as a result of s.103 FA 1986.

3

S103 is a nasty vicious leftover relic from Estate Duty. If the loan is repaid, out of the equity release funds, mother will make a PET: s103(5). That means a dent in her NRB with the same effect as non-deduction of the liability in her death estate if no repayment had been made. And she presumably already has a dent in it from gifting the bond proceeds. Will she survive 7 years or will a reduction in her NRB have little effect e.g. if her estate will be small and covered by the balance of her NRB? Is there a TRNRB?

Have the children considered a loan to her from a commercial lender which they guarantee? Is the equity release a slam dunk thus minimising the risk of it being called? The children may be nervous about making a guarantee on a non-recourse basis but s103 would remain a problem if a call is made and they have the usual right of recourse to mother, which will be an “incumbrance” per s103. So no problem if there is no call because the loan is paid off with the equity release monies.

There are family dynamics in play here clearly. On a worst view are the children reconciled to having to part with the gifted money if mother runs out of other funds?This will surely inform their assessment of any risk of loss of the gifted funds.

The best strategy is almost certainly to avoid a loan by the children if at all possible.

Jack Harper