I have been instructed by clients who have previously set up a Lifetime Trust for both Mr and Mrs some five years ago specifically for inheritance tax planning. They transferred in a property in which their son has been living until a recent decision to sell.
Coincidently the Settlors are also now selling their own home to downsize.
It has come to light however that when the Trust was set up neither a Declaration nor a TR1 were ever completed and title to the son’s property is still showing as belonging to the Settlors at HMLR.
Am I right in my understanding that a Trust of land needs either a written Declaration or a transfer at the Land Registry in order to affect the transfer from the Settlor’s estate to the Trustees? As in they can’t rely on verbal agreement.
If so, does that mean both properties still belong to the Settlors’ estates so that when both properties are sold the Settlors will incur not just SDLT but CGT as well and now also the IHT planning has failed?
That said, the original Trust deed itself is not a pilot Trust. It does specifically refer in the schedule to the fact the Trust asset is the Settlor’s half share of son’s property. Does that in itself constitute enough of a transfer?
Do you mean Mr & Mrs each executed a separate declaration of trust creating a settlement and the deed states that the trust is created over the respective settlor’s half share of the property?
That sounds capable of transferring the beneficial interest to the settlement (particularly if Mr & Mrs are trustees of the settlements) but it will depend on the wording and context. If it is just mentioned in the preamble it may not be enough but you may be able to construe it.
Hi Andrew, thank you for your prompt reply. Mr and Mrs each signed a separate Discretionary Trust whereby the schedule referred to the trust asset as being their respective 50% share of son’s now home. But there was no further Declaration or TR1, so my query is whether the Discretionary Trust deed by itself enough to transfer the property out of their estates particularly from HMRC’s perspective?
As ever what the trust document actually says is critical. It sounds as if each of your clients executed properly a separate DT naming 50% of the property in the Schedule. Much therefore turns on how the Schedule and its contents are referred to in the operative part.
It is perfectly possible for the couple to retain the legal interest, though they should have secured a Form A restriction if one was not already entered. If they are also the trustees they could not transfer the legal title to themselves as they already were registered proprietors!
But the trust document itself, in the absence of any separate written transfer of the equitable interest to the trustees, must by its own wording declare a trust over the equitable interest. Some trust documents specifically envisage that the trust property (or additional property to an initial small sum) will be added later by a separate transfer or declaration of trust; that format will not work unless another document is executed. But this format will generally not specify as trust property something contained in a Schedule, precisely because at execution it is planned to add it later.
It sounds to me very likely that your DTs are self-contained and that the trustees are expressed to hold on trust the property in the Schedule. However, only my wife believes I can read minds or interpret unseen documents.
Thank you Jack and Andrew, very helpful. As you have cleared my mind, there was not going to be any later transfer of further assets to the Trust so the 2018 DTs do appear to have completed the declaration.