Property left On Trust

I have a client who has left her residence (owned in her sole name) on Trust for her husband and her three children in equal shares. The husband and one of the children have been left a life interest to reside at the property or any subsequently purchased property. Once this comes to an end the property forms part of the residuary estate and is shared equally between the husband and the three children.

We will apply the NRB allowance and 3/4 of the residence allowance for the share of the property going to the three of them but the net estate will still exceed this. Am I right in thinking therefore that there will be IHT due now on any balance over. If yes there is not other assets available to pay this. The only other asset available is a building society account which has been left as a specific gift to the three children.

Hello,

The husbands 25% share is exempt, you will need to apply the NRB and RNRB to the 75% left to the children as you have described.

Yes, any balance not covered by allowances will be subject to IHT.

One solution is a deed of variation by the 3 daughters, they could reduce thier % to lower the IHT. I.e father 60% - 4 x 10% (D). Or vary the BSA back to the father.

Richard C. Bishop
PFEP

You need to carefully consider the form of the widower’s life interest (as you describe it). If he has a life interest in the whole the the legacy will be exempt. This would be the normal outcome if just the widower has an interest in possession (whether described as a life interest or right to occupy).

If he has a life interest in one half, that half will be exempt.

I’m not sure of the position if the widower and a son both have the right to occupy but this must be worth exploring.

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If I have understood the position correctly, the husband and son have both been given a life interest in the deceased’s share of the family home, which is effectively the sole asset of her estate.

If this is so, then both husband and son have an IPDI. The husband’s IPDI will be exempt for IHT, and the son’s will attract RNRB (only a half share though).

Whist happens when either the husband or son cease to enjoy their IPDI will depend upon the nature of their interest. Is it a joint life interest, or is it severable?

If severable, then upon the IPDI of either ceasing, the share in which their IPDI subsisted will fall into residue. If joint, it will pass to the survivor on the death of either of them.

The IHT position will follow the event.

It may be a case of seeking case specific advice on the situation as it unfolds.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals