Trs after 2 years of death

Trusts Discussion
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can I just check this please

If the administration of any testator’s estate (both complex and non complex) is not completed within 2 years of death then do you need to register?

The wording in TRSM23020 (see below) indicates that you would have to ,even if the estate will absolutely vest in a beneficiary

I have however seen reference in TRSM which states non complex estates do not need to register under TRS but this is on a page referring to complex estates needing to register under TRS to get a UTR

Any assistance greatly received

Thanks Ian

“John dies in England on 1 June 2022. He leaves his estate to his executors and trustees to hold on trust to pay his debts and funeral expenses and to divide the remainder between his wife and brother in equal shares absolutely. Under English law this creates a trust. As a trust created by will, the trustees are not required to register the trust immediately on John’s death.

The estate is fully administered and all property in the residuary estate is distributed to his wife and brother by December 2023. As this is within two years of John’s death, there is no need for the trust to be registered on the Trust Registration Service (TRS).’

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Hello
There are 2 elements here.

The first point on the estate registering as a ‘trust’, my understanding is that as a will generally leaves the deceased’s assets to the executors to hold on trust while they deal with the administration period, that is a registerable trust. However this trustis exempt for 2 years from DOD. If the estate is ongoing after 2 years it would have to register. That is per that example at TRSM23020.

The latter point you ask is about non complex estates. These only register via the TRS to obtain a UTR, they are not part of the register itself and do not need updating nor closing once the estate ends.

2 very different things. Hope that helps.

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Sadly and stupidly, as I learned from an earlier discussion, you do need to register in your example.
It just goes to show that the people who designed this law, knew nothing about the real world in the administration of estates, many of which extend well over two years before you can close the file even though the beneficiaries may have received all that they were lucky to inherit but there might be a nigling admin item where you are awaiting a payslip from HMRC (And we know how long they can take!) to pay the already obvious small tax liability arising during the administration period.

Patrick Moroney

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On death, a person’s estate (both personal and real) devolves on his PRs. The PRs do not at that time hold the estate property as “trustees” for “beneficiaries” (ie those inheriting under the will during the administration period who only have choses in action). No trusts arise at this time.

The 4th and 5th money laundering directives have no application to “estates”.

Sch 3A MLR 2017 (inserted by SI 2020/991) provides for exclusion from registration for certain UK non-taxable trusts, including under para 7:

“Trusts having effect on death
7.—(1) A trust effected by will where—
(a) the trust is holding only the property comprised in a person’s estate on death, and
(b ) less than two years has passed since that person’s death”.

The exclusion requires that any trust created by will must be terminated within the two year period; completion of the administration is not so required.

HMRC define what they regard as a “complex estate” for the purposes of tax assessments; accordingly, an Estate Tax Return will be necessary for complex estates. This in turn requires TRS to be used to register a complex estate in order to set up the required tax record and generate the required estate Unique Taxpayer Reference (UTR) for self-assessment purposes. This is for administrative purposes only and the information collected on registration reflects that [HMRC TRS Manual para 27010].

Malcolm Finney

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So Malcolm (@malcfinney1), summarising your conclusion can we say that if an estate either has no tax affairs, or it does but it is not “complex” as defined by HMRC then:

  • If the will or intestacy contains a trust (e.g. an entitlement due to a minor, a life interest, a discretionary trust) then it must register under the TRS if the estate remains in administration 2 years from the death; but
  • If the will or intestacy contains no trust (i.e. all adult beneficiaries absolutely entitled) then the estate never needs to register under the TRS, i.e. whether 2 years have elapsed since the death or not?

Or would you go further? Would you say that even in the first of my examples the estate does not need to register under TRS unless and until assets are appropriated to the trustees? Others commenting above clearly think the estate would need to register. Indeed Patrick (@plasycoed), if I am interpreting him correctly (am I?), is saying that even an estate in the second of my examples would have to register after two years.

(In case it is not clear I am not trying to express any opinion in this posting, merely to elicit yours.)

Andrew Jones

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PS to my posting above, presumably the “trust” referred to in my first example must also NOT be on the list of published exceptions, for this to be true.

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Andrew I can well understand your confusion. Indeed up until I was informed by an acquaintance, who had attended a course on TRS, that all estates where a Will was involved needed to be registered if not completed within two years of death,
(on the basis that the executors were holding the estate In trust for the beneficiaries even though they may not have been given the estate to hold upon trust), I had been of the view that unless the Will Created a trust e.g.
an IPDI / discretionary trust or similar, the fact that the administration took more than two years from the date of death to finish did not require it to be registered. However having read various postings on this forum, there seems to be a difference of opinion on this so until I am convinced otherwise, I am proceeding on the basis that all estates where there is a Will Involved must be registered if the administration exceeds two years from the date of death. I appreciate that that could affect estates where nothing has been done in the way of obtaining a grant of representation within two years of death, which just seems ridiculous. Please can someone including Malcolm, whose views I respect, comment and conviny me that I am wrong!

Patrick Moroney

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I attempt to respond to comments made by Andrew and Patrick as best I can although based on earlier posts by others I may be alone in my views. Apologies for the length of the post.

Patrick states “(on the basis that the executors were holding the estate In trust for the beneficiaries even though they may not have been given the estate to hold upon trust)”. I do not believe that this is correct.

On death, a person’s estate (both personal and real) devolves on his PRs. The PRs do not at that time hold the estate property as “trustees” for “beneficiaries” (ie those inheriting under the will during the administration period who only have choses in action) [Livingston v Comm of Stamp Duties PC [1964]].

The 4th and 5th money laundering directives have no application to “estates”.

There are, I believe, two issues to be considered.

There is the deceased’s “estate” and “trusts” arising under the deceased’s will.

Estate
Where an estate is treated by HMRC as “complex” then it becomes necessary for the PRs to obtain a UTR number for the estate and SA900 is required to be completed for each tax year of the administration period. The term “complex” relates to self-assessment and not the TRS. Nevertheless, in order to obtain a UTR the estate requires registration under the TRS but such registration is for administrative purposes only (per HMRC “and the information collected on registration reflects that”).

Will trust
An express trust requires registration whether or not it has a tax liability.

However, certain non-taxable (only) trusts may qualify as “excluded trusts” (ie are excluded from registration); these are listed under Sch 3A MLR 2017; SI 2017/692 (as amended). Para 7 Sch 3A provides for “trusts having effect on death” to be excluded from registration if the trust is holding only the property comprised in a person’s estate on death and less than two years has passed since that person’s death. Thus, registration of the trust will be necessary if two years or more has lapsed from the date of the deceased’s death and the trust is still in existence (ie it has not been wound up).

Based on the above, my responses to Andrew’s post (italics below for ease of reading) above are as follows:

if an estate either has no tax affairs, or it does but it is not “complex” as defined by HMRC then:

  • If the will or intestacy contains a trust (e.g. an entitlement due to a minor, a life interest, a discretionary trust) then it must register under the TRS if the estate remains in administration 2 years from the death*

Response: Where the estate has no tax liabilities and the trust (not necessarily the estate) subsists two years after death, registration of the trust is necessary. But where the trust has a tax liability, even if the estate does not qualify as a complex estate, then Sch 3A para 7 is irrelevant and registration of the trust is necessary irrespective of any time period. In addition, the estate must register to obtain a UTR (see above).

if an estate either has no tax affairs, or it does but it is not “complex” as defined by HMRC then if the will or intestacy contains no trust (i.e. all adult beneficiaries absolutely entitled) then the estate never needs to register under the TRS, i.e. whether 2 years have elapsed since the death or not

Response: Where the will does not create any trusts there is by definition no trust which requires registration. However, if the estate has a tax liability and is complex registration of the estate is necessary in order to secure a UTR (see above); otherwise no registration necessary.

It may be that in practice administration of an estate within a two year period may prove difficult. However, as indicated above, exemption from trust registration under Sch 3A para 7 does not depend upon this but whether the trust subsists two years post death. HMRC accept that trustees’ powers may be exercised prior to completion of administration or the assent of property by the PRs and thus termination of the trust within the two year period is possible.

I suspect I may be in a minority of one but would welcome arguments to the contrary.

Malcolm Finney

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I agree entirely with Malcolm’s analysis subject to one query. Para 7 Sch 3A requires the trust to be “holding” the property. I seriously question whether that accurately describes the position at any given time if no part of the property has then ceased to be subject to the administration period. As HMRC’s interpretation of the law is quixotic, to be as vestigially charitable as I can manage, it may be best to assume the need to register a non-taxable trust once 2 years have expired.

Also to be fair to HMRC, even though they haven’t thought about it, the ending of the administration period as to any given asset in an estate which comprises pure personalty is a factual matter as no assent is needed, so the exact timing of the event may be disputable. As regards “Land”, which includes leaseholds, s36 AEA 1925 requires a written assent by the PRs to the trustees even if they are the same person(s): Re King’s Will Trust [1964] Ch 542, regarded by some as a controversial decision because treating the word “vest” as including vesting in a different capacity.

The cost of trying to persuade Muppet Inc. of this subtlety may be just too daunting compared with that of registering, which is unlikely to be countered with a repudiatory citing of the case above. We do not as yet have any serious guidance on penalties, except that they may be charged, and that the SI itself allows a penalty “considered appropriate”, subject to an all reasonable steps and exercise of due diligence defence. It may also be pondered that presumably, in a solvent estate, ultimate vesting in the trustees is just a matter of time and thus registration will eventually be required; it may then be treated as made late by an employed muppeteer, forcing the above defence to be argued, or the Re King’s point, or the appropriateness of the penalty. Another example of poor jurisprudence suborned by bowing to Euro-nonsense resulting in the ambiguous effect of the SI.

Jack Harper

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Without expressing any opinion of my own, and desperately trying to avoid ranting, it really bothers me that we, the members of the Trust Discussion Forum, cannot agree on the question of whether a non-complex estate that is still in administration two years from the death needs to register under the TRS. I see three answers expressed above, namely:

  • yes;
  • no; or
  • it depends.

This is surely a pretty fundamental question. Literally hundreds of solicitors must be in the process of deciding this in relation to literally thousands of cases. And it doesn’t seem likely, from this conversation, that they’re all going to reach the same decision!

Has STEP issued any guidance on this?

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STEP’s UK Technical Committee has raised this point with HMRC and is waiting for a response. We will ensure that what they have to say will be publicised as soon as possible.

Robin Vos

STEP Technical Committee

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It depends on whether there is a will trust or not.

If not, the answer is NO.

If there is, the answer is IT DEPENDS on whether the administration period has ended as regards the destined trust property at the point 2 years after the death. With Land not unless an assent has been made, With pure personalty it is a question of fact.

I made the point above “presumably, in a solvent estate, ultimate vesting in the trustees is just a matter of time and thus registration will eventually be required”. In that case registration earlier than strictly required seems to have only an upside. HMRC are hardly likely to refuse or debate.

I will rant if I want to unless Moderated. Those to blame for this mess are painfully obvious and as far as I know do not include any members of this Forum. It behoves Professional Bodies to do a little more ranting and rather less kowtowing when their members and the lay clients have to put up with this idiotic stuff.

Jack Harper

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And HMRC are still making it up as they go, as witness the continuing updates to TRSM, some as recently as 20 July 2022.

The main SI came into force on 26 June 2017 and the amending one with Reg 45ZA about non-taxable trusts on 6 October 2020. So HMRC have had all that time to get their guidance straight and that is ignoring the preparatory work they will have done to instruct the draftsperson. The professions have been constantly pointing out to them anomalies that should have been identified and debugged before the law came into force.

Jack Harper

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Andrew Jones asked for views and because he believes there is a lack of consistency in the responses he is “desperately trying to avoid ranting”. A strange response; perhaps a better and more constructive response would have been for him to contribute to the debate by expressing his own view including commenting on the views expressed by others.

Given the lack of detailed guidance from both HMRC and the various professional bodies wrt SI 2017/692 (as amended) over the last five years it is hardly surprising that different views on various aspects of the Regulations have arisen not helped by (as Jack would say) HMRC making it up as they go along.

Returning to Andrew’s specific issue “… the question of whether a non-complex estate that is still in administration two years from the death needs to register under the TRS”.

As my post sought to make clear, whether Sch 3A para 7 is satisfied is determined whether or not a trust effected by will is holding property at the two year mark or later. To this extent the determinant is not necessarily whether the estate is still in administration.

In principle during the administration period no trust of any of the deceased’s assets arises (see m y post above). If the administration period lasts for two years or more after death and during this period no assent of assets is made to trustees then during that two year period no trust has commenced/been constituted. Inevitably therefore as and when the trust does commence more than two years post death will have passed and registration of the trust will be necessary.

If, on the other hand, during the period of administration assent of assets occurs and the trust commences, whether or not registration of the trust is necessary will depend on the position wrt the trust at the two year mark (ie has the trust terminated by that time or not).

The reference to non-complex estates is of relevance only wrt self assessment. A non-complex estate can utilise the informal payment procedure whereas a complex estate cannot and the estate needs to obtain a UTR by registration.

Malcolm Finney

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Thank you, Malcolm. There is no need to take offence: my rant would certainly not be at you or at any other of the commentators here, but at the state of the law which is - shall we just say - unclear.

For what it’s worth my understanding is very close to that which you express.

16

H and W each own solely several assets and make a decision to own them in future jointly. So H makes a declaration of trust over his and holds on a bare trust for them jointly and W does the same with hers. The bare trusts are not taxable because any income will be taxable on the individuals as such and not as trustee and CGT will be in point only on a future disposal not on creating the bare trusts. They are however registrable as non-taxable trusts as the co-ownership exclusion does not apply. In this way the enormous potential moneylaundering opportunities for H and W are neatly curtailed and if you have a law enforcement authority access right (but not only a legitimate interest or a third party access right: REG 45ZB) you can 'ave a butcher’s at what they’ve got, assuming no loss of mental capacity on the part of the settlor or a beneficiary (all “beneficial owners”).

In TRSM 32100: “As trustees have to be able to carry out certain functions to fulfil their role, it is unlikely that an active trustee in the trust would lack mental capacity. In most cases a trustee who lacks mental capacity would cease taking any active role in administering the trust.
If the other trustees wish to record that a trustee lacked mental capacity before he or she was removed from the trusteeship, this fact can be recorded on TRS before the trustee is removed from the record.”
These pearls of wisdom seem to overlook the fact that Reg 47B only applies to “beneficial owners” and a trustee is not one such unless also the settlor or a beneficiary including a “potential beneficiary in a document from the settlor relating to the trust such as a letter of wishes.”
Guidance on access for legitimate interest and third party entity requests “can be made from 2022 onwards. Further information on these requests will be available in this manual in advance of that date.” So still being "made up"then!
Jack Harper

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Jack, bit mystified by your last post??

Malcolm

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Thank you for your posts Malcom, I found these have given me hope. My understanding of your interpretation therefore, using a simple example:

Mr dies, leaving estate to two adult children. The estate is not complex for tax-purposes so would not require registration under ‘old’ system. For various reasons the estate is however not finalised within 2 years (let us say slow market to sell the property). The adult children as joint Execs sell the property 2 years after death and then distribute to themselves as per Will. They do not assent property to themselves prior to sale.

If I have understood your reasoning correctly, there is no “Trust” here but merely the estate admin and therefore does not need to register as non-taxable Trust even though exceeds 2 yrs from DOD. Is this correct / your interpretation of HMRC’s (lack of) guidance?

Would the answer be different is adult Execs had completed a memorandum of appropriation for CGT purposes to hold prop on bare Trust for themselves prior to sale?

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Skippyp, unless the will creates a trust TRS is never in point. So unless the Will creates a trust in favour of the two adult children, if the estate is given to them absolutely, provided the estate is not complex TRS registration is never required.

Jack Harper

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But do we know what HMRC’s interpretation on this is? As most Wills state: “residuary estate upon Trust to distribute to XYZ”

Whilst we know pragmatically and logically this is not a Trust in the same way an IPDI or Discretionary Will Trust, or even bare Trust for minors would be, does HMRC / TRS rules take the same practical approach?