I am administering an estate where the Will (2007) leaves a NRB discretionary trust. The whole estate falls within the NRB allowance and includes a small ISA holding and 50% interest in the family home (£225k).
The Will does not incorporate the STEP provisions and does not have any express provisions about the trustees being allowed to accept and IOU in satisfaction of the legacy.
The family would like to do the charge scheme and accept and IOU from the executors with an equitable charge over the property, their objectives are to keep the administration of the trust simple but ensure the home is protected from care home fees if needed. I have a few questions;
Are the trustees able to accept an IOU and charge the property without any express authority in the Will/trust deed?
The Will does allow the trustees to make interest free unsecured loans to beneficiaries - is it possible to make a loan to the beneficiary of the property without SDLT being chargeable?
Finally if the Will did contain the STEP provisions do these give enough flexibility to the trustees to accept an IOU etc?
In the absence of the appropriate powers, for the avoidance of doubt I would grant the surviving spouse a flexible life interest. Much simpler and you preserve the TRNRB and TNRB, without all of the other attendant complications and uncertainties.
I have a similar question although in my case it is the issue who would like the IOU/Debt scheme. The provision in the will allowed it for the spouse but no provision for other beneficiaries. It did incorporate the STEP provisions (first edition) although I can’t see anything in the STEP provisions which allows this or allows trustees to add such a power. Is there a way of achieving this that I have missed?
Thanks
Lorraine Burkey
I assume your will is a standard NRB trust with residue to spouse.
Normally the executors create the debt over the asset and the debt is used to satisfy the legacy to the NRB Trustees leaving the asset (subject to the debt) to pass to the spouse as part of the residue.
If you are looking to pass the asset subject to the debt from the estate to the the issue i cannot see how you do that without bringing the issue in as residuary beneficiaries by a DoV which would displace the spouse exemption or by the spouse making a subsequent gift.
If it is the benefit of the debt you want to pass to the issue then an appointment from the NRB trust to them would appear to be in order. Have I understood the question correctly?
Thanks for answering Nigel. There is no current debt. Yes, standard NRB. The trust contains cash of £325,000.
The issue would like to keep the trust going. They are named as beneficiaries of the trust in the will. They are hoping the trust will loan them the £325,000 and accept an IOU.
I can’t work out if this is possible with the STEP (1st Edition) provisions or by extending the express power in the will for the trustees to accept an IOU from the widow (now deceased).
Thanks
Lorraine
In the absence of specific provision in the will, the use of an IOU/Debt scheme will be a breach of trust.
Mindful that any arrangement would need to be suited to the needs of the testator, I would not see the STEP Provisions as a suitable vehicle for this purpose.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals