My initial thoughts are as follows:
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Unless the trust income was mandated to the interest in possession beneficiary the trustees are obliged to file a return re the trust income up to the date of death. On the beneficiary’s death, the trustees then hold the trust property on bare trust for the remaindermen in which case it is for the remaindermen to file on their own behalf’s re income post beneficiary’s death.
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As the remaindermen are absolutely entitled as against the trustees from the beneficiary’s death it would seem the trustees must take instructions from the remainderman re the portfolio management.
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Prior to the beneficiary’s death, any capital losses arising from share disposals held by the beneficiary are allowable capital losses for use against capital gains made by the beneficiary in the tax year of death and where necessary can be carried back for offset against gains arising in the three tax years prior to death.
Capital losses arising post death would prima facie be those of the executors.
With respect to capital losses made by the trustees (ie made prior to the beneficiary’s death) these are offsettable against trust gains of the same tax year (but not further tax years as there will be no such trustee gains). Unrelieved losses are not transferable for use by the remaindermen unless such losses arise on the deemed sale and re-acquisition of the trust assets on the beneficiary’s death (but are restricted as to use by the remaindermen).
I would have thought that the portfolio would have been split so as to be in a position to clearly identify whether a sale was made by the deceased (when alive) or by the trustees. It should be a matter of record as to the base cost of the shares purchased for CGT purposes, the number of shares so purchased and whether those shares were purchased by the deceased or the trustees. Any share sale would then be that of the deceased (prior to death) or the trustees depending upon who gave the instruction to sell.
If all the shares whether purchased by deceased or trustees were simply lumped together and managed on a discretionary basis did not the managers still not know when a sale took place whether the sale was made on behalf of the deceased or trustees?
If the records are that bad so sales cannot and were not allocated then presumably one approach might be as follows: shares purchased by deceased, say, 100. shares purchase by trustees 200. Say then 60 shares were sold. 100/200ths of 60 allocated to deceased and 200/300ths of 60 then allocated to trustees. The shares sold would then be allocated against shares purchased on a FIFO basis, the respective base costs then be allocated.
- As indicated above, on the beneficiary’s death the trust property is held by the trustees qua bare trustees for the remandermen. In which case any gain/loss on future disposals are this of the remandermen not the trustees.
In the tax year of death of the beneficiary, the trustees are entitled for that tax year to 50% of the annual exempt amount available to individuals. This available for offset only against trust gains not against gains made post the beneficiary’s death (when the trustees are only bare trustees).
Malcolm Finney