I would be most grateful for your views/guidance on the following:
I have a client who is Executor of his late father’s estate as well as a trustee and potential beneficiary under a discretionary loan trust together with his sister. His late father was the settlor of the loan trust which holds an offshore bond.
The loan trust has an outstanding loan of £150k, which had yet to be settled at the point of his late father’s death. Residuary beneficiaries of late father’s estate are client and his sister (49.5% each) with a charity due to receive 1% of the estate.
The Will makes no provision for dealing with the outstanding loan.
The client would like to deal with the outstanding loan, so that we may consider options regarding the ongoing management of the trust and progress his personal financial planning. I highlighted that his options are either to:
Repay the outstanding loan to the estate (though this is likely to give rise to large tax liability as it would be necessary to encash a large portion of the OSB).
Waive the loan to the trust with the consent of the residuary beneficiaries.
Deed of variation.
Given the tax liability under 1), it seems that 2) would be the easiest option here. However, the charity in my view are unlikely to waive their entitlement under the loan. Is it possible for the trustees to settle the charities’ 1% share of the loan i.e. £1500, and then the client and his sister waive their own personal entitlements using a Deed of Waiver? (provider has a template deed of waiver that seems suitable in this case). Is this the best way to approach waiving the loan?
Many thanks in advance,