TRS and Deeds of Variation

A beneficiary of an estate in the course of administration varies (by deed) their entitlement in favour of another person. The gift is an outright one and there is no mention of a trust. Does this have to be registered with TRS as it constitutes a new bare trust? The executor now holds the subject matter of the gift for the new beneficiary. The bare trust was not created by the Will.

A DoV may be executed whilst an estate is in the course of administration. Despite any “reading-back” for IHT/CGT purposes under IHTA 1984 s 142, any redirection in law is effective when the document effecting the redirection is executed. At this time the PRs may then hold the redirected asset on bare trust for the person in whose favour the DoV was executed.

I don’t believe any TRS registration is necessary; see Sch 3A para 15 :

"Registration of assets

  1. A trust created on the transfer or disposal of an asset where the purpose of the trust is to hold the legal title to the asset on trust for the person to whom the transfer or disposal is being made until the time when the procedure required by law to effect the transfer or disposal of legal title is completed".

Malcolm Finney

The problem with this is the TRS Manual does not refer to para 15. It simply says that after a variation the trust is not created by the will so the 2 year exclusion (para 7) does not apply. Para 15 may apply to a registration of a Land Reg transfer, but TRSM does not say it applies here, and it would do if it was meant to apply.
See TRSM23020 - Types of trust that need to be registered: contents: excluded express trusts: contents: estates and trusts created on death

Thank you both for your helpful comments. I agree that the position could be made explicit in the TRSM, but I don’t think the fact that the TRSM doesn’t do that is fatal. TRSM talks about “the trust” not being created by the Will. For my part, there is at least a lack of clarity arising from HMRC’s rather odd view that a gift “on trust for A absolutely” needs to be registered whereas a gift “to A absolutely” does not.

If there is no mention of a trust in the deed there is nothing to register. There may be an implied bare trust but only express trusts are registrable.

The nature of the asset gifted by the deed is not stated. A valid deed is sufficient to pass an equitable interest in the asset provided the executor does not require it for administration; unless and until administration is complete as regards that asset the donee under the deed has only a chose in action (to enforce due administration) as that is all the donor had. There is no need for a trust and the pitfall of incautiously declaring one (either in the Will or the deed) has apparently been avoided.

So in due course if the asset is not required for administration the executor (if notice is given of the deed to the executor) can assent to the donee, perfecting the donee’s equitable title and if the asset is land and the assent is in writing transferring the legal title. The assent does not need to and should not mention any red herring trust as no express trust exists nor needs to.

Jack Harper

Your point that HMRC’s view evinces a “lack of clarity” is excessively charitable. This Hydra seems unable to keep track of its own pronouncements deriving from its multiple orifices. The following is to be found in “Janet and John Set up a Jolly Fine Trust”:

"TSEM6035 - Legal background to trusts & estates: will - use of the words ‘trust’ and ‘trustee’

A testator (the person making the will) often includes the phrase ‘I appoint XXXX to be my executor and trustee. I give and bequeath all my goods and possessions to the said XXXX upon trust’. Using the words ‘trustee’ and ‘trust’ does not create a trust. The words emphasise that the testator trusts the executor to discharge the duties and responsibilities of the office.
Later in the will, the testator may create a trust. This has nothing to do with the earlier use of the words ‘trustee’ and ‘upon trust’."
If the use by the drafter of a document of the word “trust” is superfluous or otiose it is devoid of legal meaning and significance, and so of any legal consequences. As in “on trust for A absolutely”. The contrary view therefore not only definitively lacks clarity but demonstrates an intellectual deficit on the part of any jobsworth at HMRC (Stalag TRS) who parrots it out.
Jack Harper

Thank you Jack. Do you have an opinion on whether, if the deed had instead declared “upon trust for A absolutely”, it would need to be registered as an express trust? Or would Sch3A para 15 apply to exempt it, as Malcolm suggests it might?

The problem with para 15 is its specific reference to the legal title. So I think it is apt to apply to a situation where the legal title is vested in the executor, as with registered land, or shares in a company, or a debt due to the deceased or, I think (though not my field), intellectual property, and eventual transfer or disposal of that title is intended. What if the asset is an equitable interest e.g. a share of a trust fund? Is it reasonable to expect a judge to stretch the meaning of “legal title” to encompass an entire title albeit equitable? What if it is a pecuniary legacy? Practitioners should not be expected to answer degree paper questions when £5000 is at stake (TRSM80020).

Fortunately most assets will come within para 15. A pecuniary legacy does not create a trust at all as it lacks the certainty of subject matter even if the deceased has current and savings accounts.

The other fertile area for this dilemma is deeds of appointment which unnecessarily declare trusts.

The practitioner is faced with the fact that registration just for the avoidance of doubt is not a cost-free option to the client. I think the choice to register or not on the basis that there may be legal grounds for not registering must be put fairly and squarely to the client. Seeking an advance HMRC ruling will entail at least delay though whether by post, or by telephone and despite the essential attendance note, there is no absolute certainty. The online procedure affords no white space equivalent. The adviser can only lay out for the client the pros and cons of registering or not. It is not fair on either but it is the client’s trust and the risk is theirs.

Jack harper

Thank you, yes I would be inclined to agree that para 15 is going to ride to the rescue most of the time (thank you again Malcolm for pointing that out) and that clients will have to bear the risk of it not doing so.

We could certainly go down the rabbit hole and visit Cloud Cuckoo Land, but not today so I will simply thank you all for your kind help.