D died in October 2020 and we have only recently been instructed. Probate now issued.
Will leaves 40% to son in DT (also Exor/Trustee)
20% to minor Grandchild until 25 (currently 16)
40% between two adult grandchildren absolutely (Exors/Trustees)
Estate includes property with circa £40K gain since death.
Ts unsure whether to sell property, or retain and rent. My view is to sell though no estate CGT allowance available. Can estate assent (or appropriate) property at £235,000 Probate Value as per the Will then they sell with 2 x personal CGT allowance and 2 x Trust CGT allowance? £9K in total.
In respect of the Trust aspects, considering appoint out to son after sale/or Trust continues with cash to be invested.
But if they opt to retain/rent property, it may be worthwhile appointing out 40% of property to son now with that Trust paying CGT of approx. £1,500 then son has own CGT allowance going forward for his 40%. This will also remove Trust income tax on that portion. Though this will also depend on the reason for the Trust in the first place, which I do not know at this stage.
Both Trusts need to be registered, and I believe the estate also needs registering as over 2 years since death.
As you can probably see I am somewhat tying myself up in knots and this post is far more brief than what is floating around my head.
As always, any help and suggestions greatly appreciated.
There are some ambiguities in the question. First, I assume that the son is not the only beneficiary of the DT. Secondly, it is not clear whether the minor grandchild has a contingent interest (and if so whether there is a gift over, such as a cross accruer provision as it is an interest in residue) or whether it is vested but deferred in payment only.
I say below that the rule in Saunders v Vautier (“the Rule”) may be relevant. A beneficiary with a contingent interest is not within it. A beneficiary with a deferred interest only will come within it as soon as he attains 18: Josselyn v Josselyn. Are the DT trustees within it? They do not have a beneficial interest in the share of residue but I believe for the Rule that they are within its rationale as the executors will become bare trustees for them in their capacity as trustees. ToLATA 1996 will apply while the land is unsold and for that Act they are “beneficiaries”, though they are not “beneficially entitled”:s22(1) and (2).
1 During the admin period executors have have a wide discretion as to whether they need to sell an asset for due administration. Once the AP ends they should be more circumspect and strictly they become trustees and functus officio as executors. In both capacities they are bound by the duty of care under s1 TA 2000. Unless excluded by the trust instrument: s2 and Sch 1 para 7. ToLATA also applies to them in both capacities, with limited exceptions while PRs. Section 6(9) mandates the duty of care and it is not clear whether it can be excluded but in my view not, because the reference is to s1 TA 2000 and not ss1 and 2.
It must make sense for the trustees in this situation (while the land is unsold and is a “trust of land”) for them to take into account any letter of wishes from the testator but also those of the residuary beneficiaries who are the grandchildren, including the minor. Section 11 of the Act applies unless excluded. The minority prevents Saunders v Vautier and s19 from applying even though they would if he were 18. In my view the DT trustees are within the Rule and are also trustees of land. If the minor’s interest is contingent the Rule cannot apply before he is 25 and if he dies earlier it will depend upon who succeeds to his share. The trustees may have power to convert his share to an absolute interest, either expressly or under s32 TA 1925 if they judge it to be for his benefit. They should not do that prematurely ahead of a sale or there will be a deemed disposal under s71 TCGA. One hopes there will be consensus over whether or not to sell and if not the trustees should take suitable advice. I would imagine potential appreciation might dictate retention if letting meanwhile would wash its face.
2 It is often overlooked that the Rule is two-way. Not only can the beneficiaries demand a transfer; the trustees can insist on it. While strictly that cannot be applicable here until there is no longer a minority, a reasonable savvy 16 year old who consents reasonably should avoid any problem for the trustees. He can in theory prevent the Rule from applying but can only prevent a trustee sale by obtaining an order under s14 ToLATA (which does not apply to PRs as such). If all the others are unanimous as to sale or not (including out of prudence the son, despite being a mere object of the DT) the trustees should be safe. The object of even a mere power (as well as of a power of appointment) can block the Rule from applying, according to Lord Walker obiter in Re Sharp [2003] AC 709, but the power of a discretionary beneficiary to do so is not settled.
3 If the property is to be retained the holder of the legal title will need to be decided. Before the equitable title is assented it might be an idea to persuade the recipients to make a written agreement among themselves as co-owners as to the management and future disposal of the property. For CGT the shares will be acquired by them as legatees and any future disposal taxed on under the normal rules. The s71 TCGA issue for the minor must be borne in mind as it will come for certain on his 25th birthday at the latest unless the land is sold previously. His share will be held on on an RPT but an early appointment to him, as for such an appointment out to the son from the DT, will be an RPT IHT chargeable event and may be a worthwhile sacrifice as the rate should be low if not nil and any gain could be held over. The current market value may be well above probate. The minor cannot unilaterally cash in his share unless the other co-owners agree to sell subject to s14 of ToLATA. If it is to be sold in the short term then a familiar plan to minimise the CGT liabilities on a sale after assenting should be considered. This could include the above appointments just prior to execution of the contract of sale.
As the minor’s interest is vested S v V will apply when he reaches 18 and HMRC accept that s31 TA 1925 does not create an RPT meanwhile as he is entitled to any accumulations of income. For CGt he would be absolutely entitled but for being a minor.