I am dealing with an estate where grandmother has left her property to her four minor grandchildren (two daughters have two children each).
Its a specific gift at 25 years with power to advance - property is now up for sale. Exec has made probate application herself but wants us to deal with the property sale and ongoing trust.
She has asked whether she can use the proceeds of sale to buy the property she is living in with her children. Landlord is seeking possession to sell.
My feeling is no as she would not be able to advance funds, she could be self dealing (Trustee) and how would you be able to force a sale when the gift vests.
Apologies I am turning around in my head various options but at the end of the day, it will be trust money so I think on sale it will have to be invested?
The sale proceeds will indeed be trust money and the actual beneficial entitlement provisions of the will trust must be rigorously observed i.e. that her children are beneficiaries but she is not. However putting a roof over the head of her children would surely justify an advance to each of them of 1/4 of the fund. s32 TA 1925 could be used though you may have an express power. The children would either have to be outright owners of the property or each granted an interest in possession so that if they died before reaching age 25 any gift over currently in the will trust would still operate, which would be fairer to the other 2 children. Either way the CGT PRR exemption should apply to the children or the trustees as the case may be. The IIP route would also be fairer because if either child died before attaining majority they could not make a valid will dealing with an outright share in the property.
What if an advance to the 2 children is insufficient to meet the purchase price? Can the mother raise the rest? If so and that results in joint ownership the children/trustees must have an agreement with her to manage that relationship. This indicates that the advance on IIPs is better as the trustees will own the asset and be party to the agreement, although in that case the trustees must satisfy themselves that the asset is a proper investment in its own right especially if joint ownership is in point. This may meet with resistance that such formality is not justified in the family in question (yet!).
While an outright advance apparently does not need that, as the children are minors (ages not stated), the trustees could be exposed if they are of such a young age or de facto their relationship with their mother (and any partner) could lead to undue influence. I would want to advise a joint owners’ agreement; or some formal occupation arrangement with mother (and any partner) even if the children can buy 100% out of the advances and are the landlords.
I do not think self-dealing comes into the above in principle; the mother is not purchasing a trust asset. As in every family trust she is nevertheless potentially conflicted in the sense that any action by the trustees may benefit herself indirectly. Is she sole trustee or if not who else is? Even if the Will trust has no special provision dealing with conflict, as do the STEP Standard Provisions, it might be worth considering appointing an independent trustee. In general I do not favour the straight jacket of clause 8 ibid, but my usual additional provision (consent of 2 adult beneficiaries who are not also trustees) will not help here as all are minors. Clause 5.1 ibid relating to minors who are 16 or over is not any way a blanket protection for the trustees. Nor should they rely on a trustee majority voting provision if the only other trustee(s) are close relatives.
Even where all trustees are family members a mere professional adviser can only advise, which is a very good reason why professional trustees should be avoided. An adviser can only give advice about the law and best practice. In my view that includes especially warning that, even where within the family current relationships are harmonious, families do fall out over money and that may often be because of new relationships with non-family members formed and/or terminated in the future. It is possible usually to give constructive client-centred advice about such matters, even if partly for self-preservation reasons, but which recognises that adviser and client cannot see round every corner. As well as legal professional privilege clients also have the privilege of ignoring your advice and self-destructing if they wish, and you have the right to say “I told you so” if and when they kick off and blame you.