Trs after 2 years of death

Trusts Discussion
21

Forgive the rant.

Whilst I have little sympathy for HMRC’s attitude throughout the EU, OECD and FATCA “negotiations” on trusts, the main issue is that the Anglo-Welsh 1925 legislation is not built on the basis of absolute property rights as known in civil law, but on better claims to title - even at law. It was against that evolving feudal context that the Chancery courts elaborated uses and then trusts. That principle of relative property rights is entrenched quasi-constitutional principle but does not correspond even to other jurisdictions denominated as “anglo-saxon” where the “British” Monarch has a different role en droit (in right), if any at all. Trusts of Land or trust conveyancing beyond Anglesey, Carlisle and Dover?

If this persists, the UK will be unable to fulfil any Bill of Rights or ECHR obligations as to the protection and respect of anglo-welsh or Scots or NI “property” and “property rights” quite simply because its administration doesn’t know what the term actually means in any given context and is forced to be arbitrary.

This not helped by HMRC’s tendency to confuse an absolute (i.e. foreign) real property right with a settlement at the drop of a hat by substituting the lex fori for the law proper to the right. That tendency might be applied to the indigenous situation.

How they can expect or be expected to set up a coherent system responding to their Janus or rather Cameronian negotiating position in those organisations encapsulating two contradictory principles eludes me. That is the problem when a Treasury attempts to bite off more than it can eschew.

Peter Harris

22

I am not sure “most” Wills say that. I do accept that the scheme of many Wills is to create a trust over the residue. This raises an important point which I have addressed here before in connection with the exercise of powers of appointment. As only express trusts need to be registered, two important drafting points arise:

1 Is it essential to create a trust? and
2 Can an explicit trust be ignored where otherwise a trust would be implied by operation of law?

I think No is the correct answer to 2 and it is certainly safest to assume that is so.

A well-known precedent runs:
"

  1. EXERCISE OF THE POWER

2.1 The Current Trustee[s] exercise[s] the Power to appoint the Trust Fund as set out in Clause 2.2.

2.2 Beginning on the date of this deed, the Trustees hold the Trust Fund on trust for the Specified Beneficiary absolutely."

My point is that in 2.2 the words “on trust” are superfluous. If a trust arises it will do so by operation of law, it will not be express, so it will not be registrable, but the beneficiary’s rights against the trustee will be identical. So even if the beneficiary is a minor s31 TA 1925 which applies where property is held in trust for a minor will operate unless modified or (as it sometimes is for tax reasons) excluded so that any implied trust will be a bare trust for tax.

As regards a Will where the residue is to be left to 2 adults absolutely. s33 WA 1837 does not create a trust for the issue of a pre-deceasing parent. Compare s46 AEA 1925 which directs that an intestate estate is to be held on trust (hence the TRS exclusion).Unless s33 is disapplied (by a “contrary intention”) by more elaborate trusts to cater for the issue being minors or adults needing protection or to facilitate generation-skipping.

Of course, while specific and general legacies need not have an express trust attached nor absolute share of residue (if s33 is an acceptable backup). But any express trust in a Will has to be registered eventually if it endures longer than 2 years after death regardless of what else the Will says (and earlier as a taxable trust if a liability arises earlier and the administration period has already ended).

The author of the above precedent clearly did not have the TRS in mind. My point is that it can be drafted to avoid it by leaving out the words “on trust”. It will not always be practicable to avoid an express trust of residue in a Will. Mr Kessler QC’s precedents do because they are drafted to confer on trustees the flexibility of Overriding Powers over the Trust Fund defined as:
"x.1 “The Trust Fund” means:

x.1.1 my Residuary Estate and
x.1.2 all property from time to time representing the above".

The definition of Residuary Estate does not contain an express trust. It is a moot point therefore whether the trusts are express or implied, as of course the entire precedent (pre-dating TRS) is laden with trust terminology and that it is in writing and creates trusts is unarguable. The above Powers certainly do not need to be exercised by means of an express trust if the intended beneficiary is to take absolutely.

Jack Harper

23

Thank you Jack. Although agree with much of your reasoning, it does not appear to help us in cases where older Wills have been drafted with residuary estate “upon Trust”

24

Sorry, I’m not a magician! I think my point is worth making re new Wills as existing precedents have not caught up with TRS

Jack Harper

1 Like
25

Skippyp, interestingly I haven’t seen your point addressed in any earlier TDF discussions which is always a touch worrying!

Jack has responded at length but not entirely sure what his response is to your query.

My analysis is as follows. A gift by will be it specific, general or residuary left to a beneficiary, X, absolutely does not give rise to a trust. For an express trust to arise it must be specifically created eg Z leaves his investment property on trust for his wife and then to the children.

In your post you quote “residuary estate upon trust to distribute to XYZ”. I’m not sure if this is a full quote or just an extract. However, prima facie, this would seem to me to give rise to an express will trust registrable under TRS. A more common will provision for example might be “Subject to payment of my debts……… my Trustees shall hold my residuary estate in Trust for such of A, B, C and D as shall survive me and if more than one………”. This would seem to me to be a specific express trust.

Whereas, “Subject to payment of my debts……… I give all my property not otherwise disposed of ……… to X absolutely” gives rise to no trust.

In many scenarios I believe one or more trusts will arise under a deceased’s will (and in principle require registration) unless only absolute gifts are made and to adults. WA 1837 s 33 often crops up and can give rise to contingent interests resulting in trust creation.

Malcolm Finney

26

I omitted something. I meant to say “As regards a Will where the residue is to be left to 2 adults absolutely [there is no need to draft an express trust].” I did say" It will not always be practicable to avoid an express trust of residue in a Will". As to s33 WA 1837 I agreed with Malcolm until his last sentence:

"s.33 Gifts to children or other issue who leave issue living at the testator’s death shall not lapse.

(1)Where—
(a)a will contains a devise or bequest to a child or remoter descendant of the testator; and
(b)the intended beneficiary dies before the testator, leaving issue; and
(c)issue of the intended beneficiary are living at the testator’s death,
then, unless a contrary intention appears by the will, the devise or bequest shall take effect as a devise or bequest to the issue living at the testator’s death.
(2)Where—
(a)a will contains a devise or bequest to a class of persons consisting of children or remoter descendants of the testator; and
(b)a member of the class dies before the testator, leaving issue; and
(c)issue of that member are living at the testator’s death,
then, unless a contrary intention appears by the will, the devise or bequest shall take effect as if the class included the issue of its deceased member living at the testator’s death.
(3)Issue shall take under this section through all degrees, according to their stock, in equal shares if more than one, any gift or share which their parent would have taken and so that (subject to section 33A)no issue shall take whose parent is living at the testator’s death and so capable of taking.
(4)For the purposes of this section—
(a)the illegitimacy of any person is to be disregarded; and
(b)a person conceived before the testator’s death and born living thereafter is to be taken to have been living at the testator’s death.

I can’t find the word “trust” or “contingent” in here!

Jack Harper

27

I recall some time ago being told that one of the principal reasons for leaving residue “on trust” is to give the executors/trustees the power of sale, which they would not have if an estate was merely left to A, B and C, absolutely.

Has this changed? If not, then I suggest that having to register under TRS may be the lesser evil.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

28

I was referring to a will which may provide for a gift of the residuary estate on trust for A,B and C if they survive the testator provided that if any of A, B and/or C dies in the testator’s lifetime leaving issue that share of the deceased A, B and/or C is to be held in trust for their issue living at the testator’s death and who attain age 18 …

Malcolm Finney

29

Malcolm, this trust expresses a contrary intention which ousts s33. Where s33 applies and the issue includes a minor s31 TA 1925 appears not to apply as the property is not held “in trust” so if the minor dies before majority he or she must be intestate.

I agree with Paul that registering will often be the lesser evil in cases of doubt. The main downside save cost seems to be potential access to the register of non-taxable trusts by a third party other than a law enforcement agency from 1 September 2022.

I wonder whether the reason for a trust cited by Paul is so relevant these days, now we have s6(1) ToLAoTA 1996 for trusts of land and typical administrative provisions conferring similar powers over all trust property.

Jack Harper

30

Thank you Malcolm, this is a very helpful and clear reply (albeit it confirms what I feared namely in cases where the Will was drafted as residuary estate ‘upon Trust’ for A B and C then this will be caught by TRS even though in reality it will simply be distributed as outright gifts between said A B and C…)

1 Like
31

This is all great stuff, being a chartered tax advisor and not a solicitor this is clarifying the position for estates for me, thank you.
However it brings up a question, as above if an estate has tax to pay but not under the informal procedures it registers for a UTR under the TRS.
However if it also needs registering as a “trust” is that registered as taxable or non taxable?
If you answer taxable HMRC will issue a trust tax return when the tax may be settled informally.

Maybe in such cases it is registered as being non-taxable?

32

An estate never registers as a trust. HMRC use the TRS to register complex estates.

“TRSM10010: Personal representatives of large estates or of estates with UK tax liabilities
If the estate has assets or a tax liability above a certain level, personal representatives will need to register the estate to obtain a Unique Taxpayer Reference (UTR) to complete a tax return for the estate”.
If the estate contains a trust the trust itself may have to register.
It is not clear what legal authority HMRC have for dragging some estates into TRS. Apparently none. But hell, who cares? Not them.

Jack Harper

33

I think there is some confusion over the TRS, “estates” and “trusts”.

“Estates” are not covered by any of the money laundering directives/regs. It is HMRC who decided to drag them into registering under TRS where the estate is complex in order to obtain a UTR for the estate.

Separately, express “trusts” are covered by the money laundering directives/regs.

The two entities, ie estates and trusts, are considered separately. For example, an estate may be complex requiring registration in order to obtain a UTR but if there are no trusts contained in the estate then there are no trusts to register. If the estate does contain a trust then whether the trust needs to register needs to be considered irrespective of the position wrt the estate.

Malcolm Finney

34

TRSM27010 sets out the criteria for estate registration and says: " Estates are not required to register under the Money Laundering Regulations, instead this is for administrative purposes only and the information collected on registration reflects that." TRSM27010 - Types of trust that need to be registered: contents: registrable estates: contents: introduction - HMRC internal manual - GOV.UK

The question is by what legal authority do HMRC drag estates into TRS as this is not ordained by the Regs? I’ve asked them.

Jack Harper

35

I almost do not wish to be the one to resurrect this thread; however, I have been considering the same issue of late and, having reviewed the TRS manual on something unrelated yesterday, can see that the Manual was updated yesterday as regards to the interaction between estates in administration and trusts:

TRSM27030 - Types of trust that need to be registered: contents: registrable estates: contents: Interaction between estates in administration and trusts - HMRC internal manual - GOV.UK.

My interpretation of this is that it sounds as though the bare trust created by virtue of the estate not having been finalised within two years is caught by registration requirements, regardless of whether or not the estate had to register as a “complex” estate to report tax for the administration period as this is a separate issue? I welcome any differing views on this!

Amy Turner-Ives

36

It seems at last that HMRC have put some thought into the matter. “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”’
It seems they do take the view that the words"on trust" create a bare trust (even though in their example the words are not necessary, albeit contained in many extant precedents) but they still seem not to get the point that no trust arises until the administration period ends. There is no legal authority for HMRC to register estates on the TRS as opposed to PRs’ s7 TMA 1970 obligation to notify chargeability the form of which is dealt with by s113 TMA 1970. I am not aware that there is any prescribed form of notification. If there were one might expect CH70000 (penalties for failure to notify) to say something about it. So the potential lost revenue basis of penalty applies and not £5000 a pop as discussed in new TRSM 80000 which has finally arrived with the latest update.The latter penalties cannot be visited upon an estate: TRSM27010

Jack Harper

37

I have been prompted by Practical Law to the fact that apparently HMRC updated TRSM23020 to include further examples. Curiously no reference is made to this in the Updates section of the Manual. I am not able to check with the former version though someone may be able to. Anyway the current version deals well with what is a will trust and what is not and the 2 years from death rule. It shows what HMRC can do when they can be bothered or perhaps have been inundated by criticisms (which could and should have been taken on board before registration went live).

Jack Harper

38

Thanks to @jack for bringing changes to TSRM23020 to our attention. I still have issues, though. Consider this extract:

A will may expressly state that the executor holds the estate upon trust as part of the administration of the estate, sometimes known as an administration trust. Example wording:

I give my estate to my executors on trust with power at their discretion to sell all or any part of parts of such property when they think fit. My executors shall pay my funeral and testamentary expenses my debts and any legacies given by this will out of such property or its proceeds of sale and hold the balance upon trust for such of Donald, Harold and Michaela as are living at my death and if more than one in equal shares.

Whilst there may be overlap between the duties of an executor and a trustee, there is clearly an express trust which covers the administration period and therefore starts from the date of death.So, if the administration of the estate continues after 2 years from date of death it must be registered on TRS as a will trust rather than as an estate. This trust would continue until all of the assets are paid outright to Donald, Harold and Michaela.

Note this is a separate consideration from whether the estate needs to register for tax purposes as a complex estate – see TRSM27030.

It seems to me this is saying that this estate is not an estate but an “administration trust”, and therefore subject to TRS, for the reason - so far as I can tell - that the word “trust” has been used in the will. I assumed for example that the rationale would not have applied if the wording had been:

I give my estate to my executors. My executors shall pay my funeral and testamentary expenses my debts and any legacies given by this will out of such property or its proceeds of sale and hold the balance for such of Donald, Harold and Michaela as are living at my death and if more than one in equal shares.

…even though the terms of that and the original are identical in every practical sense (the lack of a “trust for sale” presumably being completely academic post-1996; I’m assuming that Donald Harold and Michaela are capable adults; also, in passing, I’d ask why a provision worded in one of these ways is more useful to a money-launderer than the other). Anyway, it just seems as if it’s the word “trust” that makes the difference.

And my problem with that, of course, is that the word “trust” is used in every will precedent book I have ever read, and in every will that I have ever drawn.

39

Andrew, I believe you are entirely right about HMRC’s view. It seems that wherever a trust is express it will be registrable (subject to the 2 year rule with a trust in a Will) notwithstanding that it is strictly unnecessary or where a trust would have been implied in any event by operation of law. Many precedents (such as Wills and Appointments under a Power) do indeed contain such “superfluous” trusts because their authors compiled them before TRS was thought of. A judge might well regard this as a distinction without a difference and apply a purposive/contextual interpretation; but no one will surely want to test that, at least not in an appeal against a £5000 penalty.

It is (sadly) not at all unusual for an HMRC published view (which to me seems here entirely tenable on a literal interpretation) to effectively become law by proclamation because of all the significant hurdles (cost, hassle, uncertainty of outcome, publicity on appeal to a Tribunal) that a challenge to it entails. While I disapprove (preferring to be governed by law not by proclamation) it is at least now public record. I disapprove even more where HMRC either deliberately suppress a settled view or make one up to suit themselves and then ambush the taxpayer.

A recent example is SDLT Multiple Dwellings Relief. MDR has been unchanged since the tax was introduced by FA 2003. An idiot could have predicted that the statutory formula would give rise to unexpected results with staff quarters and granny flats and an HMRC expert certainly should have. The problem was that MDR had no specific definition of “dwelling” nor did the entire Act. Now we have SDLTM00410-00480 which take the unusual step of stating exactly when they were published (25 June or 1 October 2019).
Before then HMRC ambushed taxpayers with secret views about the need for kitchen facilities. They might have been miffed about some being “sold schemes” but to call these situations “avoidance” would have been Orwellian because they depended on the facts and no one purchased a property just to secure an SDLT saving. One of my clients, referred after being “sold” MDR, was seeking an £80000 refund from a paid charge of £1.9 million. The appeal was made but dropped to avoid publicity not cost. About 20 or so cases have gone through the Tribunal, and all lost I think, where the savings must have been much less. Many other taxpayers must have incurred advice fees which could all have been avoided if either HMRC had published its views earlier or (more likely) accepted they were wrong and pursued appeals only for purchases post-dating such publication. Note that there has been no amending legislation as Parliament does not matter to HMRC if they can get away with it. It is not acceptable for the law to be established through the appeal system at taxpayers’ expense e.g CGT and settled property after FA 1965 and the meaning of PPR. Much of the resultant case law could and should have been avoided by clear legislation after consultation with cognoscenti. TRS is another such debacle.

Jack Harper

40

Thanks to Andrew for highlighting the use of the word Trust in a Will. For the last 40 years, since I had worked out what the purpose was of putting in a trust, (ie none) I’ve never done so. So my Wills bank is nice and clean.