Hi, new client who, after the death of his wife (and inheriting the family home) was advised by a will writer to put the family home on a bare trust for his two children, whilst he remains living there. He duly completed a trust deed. Obviously a GROB and when I explained the various possible consequences of this the children were shocked and felt he was badly advised. The settlor and the children beneficiaries want this to "go away”. My question is, could they disclaim under s93ITA 1984, so the trust would be void ab initio? They have not lived there orcas far as I can see, taken any benefit from the property. Thanks in advance.
A bare trust for IHT purposes is not a “settlement”. Accordingly, as IHTA 1984 s 93 applies only to “an interest in settled property”, presumably no disclaimer can be made under s 93.
Malcolm Finney
Section 93 is not the be all and end all of the matter. This provision is in effect a specific statutory safe haven within its precise limits but illustrative of a much wider general legal principle that anyone may disclaim a gift, outright or on trust, provided it has not been accepted. No one is obliged to accept a gift “in spite of his teeth”.
“A donee is not bound to accept a gift but he is presumed to accept it unless he expressly repudiates it. Where a gift is made by deed the property in the [goods] vests in the donee until he repudiates it”: The Law of Personal Property, Michael Bridge and others, para 8-028 Ist Ed.
So the issue in any given case will often be whether acceptance/repudiation has taken place on the facts. What evidence is there that the children here have done either?
Jack Harper
The post asks:
My answer is 'no" a disclaimer under s 93 is not possible.
Do you agree?
Malcolm Finney
A disclaimer under s93 is not possible because a bare trust for adults is not “settled property” but a disclaimer there can be nonetheless.
Jack Harper
Hi, I really appreciate both your thoughts on this. I assess from your answers that a disclaimer is not possible under s93, but a general disclaimer is possible if the beneficiaries (the 2 adult children) have done nothing that can be seen as acceptance, is that correct? If so, I assume the trust becomes void ab initio, so there are no implications from a purported ‘gift’ taking place? The children, other then being aware of what was done, had not acted in any way re the property, it was just and remained the family home that the father resided in.
If they can disclaim, I assume a deed would be appropriate to do this. If you feel they could not disclaim, what would you say are the best alternatives to effectively ‘get rid’ of this trust with the least possible implications, eg one PET being actually replaced with another, and possible SDLT implications? Many thanks again.
IHTA 1984 s93 as outlined above is inapplicable.
IHTA 1984 s142 is not in point as the husband who made the gift has not died. As s142(1) is not in point neither is s17(a) (ie the disclaimer would not be a transfer of value if s142(1) applied).
As pointed out above, a disclaimer can of course still be made, albeit neither
s93 or 142 applying.
A disclaimer involves non-acceptance. However, this does not mean that the intended recipient is unable to dispose of the gifted property prior to any disclaiming. The intended recipient possesses a right which he may exercise to get the property. In which case if he does not exercise such right a disposition/transfer of value will have been made. by the recipient. In the present case, a PET.
Malcolm Finney
On the technical side there may well be various things that can be done to ameliorate the position. It seems likely that the technical issues are only part of the problem. What do the various parties want to do? What should they be objectively be advised about, rights, obligations, outcomes? There would appear to be important personality and family relationships involved. Who should advise whom and how will advice be funded? The Forum is not a suitable medium for addressing these matters specifically, much as I regret saying that.
Jack Harper
Hi, I do appreciate all your comments and I think I may have over complicated this. The Father was advised that if he created a trust of the home he was living in (to his two children) he would avoid inheritance tax on it on his demise. This of course was incorrect and when the children discovered this situation, they, and the father wish to undo this. They are all of one mind on this, notwithstanding I appreciate the comment regarding advice etc. Upon reading it does seem a ‘disclaimer’ would be the most straightforward way of dealing with this.
I have been following this thread with interest as I have only come across disclaimers in relation to estates. I wonder what would be the CGT position on the disclaimer?
I understand if the gift is disclaimed it is void ‘ab initio’ as if it never took place, so there would be no tax implications. I stand to be corrected though.
If my view expressed above is correct, there are potential IHT consequences and the gift is not simply void ab initio. A disposition for IHT occurs.
Malcolm Finney
One wonders how many other similar gifts have been suggested by that will provider.
Ray Magill
Trying to look at this from a different perspective, what advice if any was provided? When were the children informed of the ‘gift’? Was the father on the understanding that he would be permitted to live in the property until his dying days? What is the value of the property?
There maybe no CGT implications at all if the time frame involved is short. Making a PET back to father could therefore be a reasonable option, particularly if the children are young and insurable.
Many years ago, I came across Counsel’s opinion (someone who has been known to post on this forum), which indicated that it may be possible for the arrangement to be treated as old style (pre 2006) life interest trust. Not sure if that has any legs, but it is of course fact dependent.
Or an application to set the transaction aside under the “doctrine” of mistake.
If the children merely seek to disclaim their interest, this could just make the situation more complicated.
The adviser’s insurers might fund such application if it arises as a result of the adviser’s negligent advice.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I’m not sure about the CGT analysis.
Assuming parties are not “connected”.
Following on from my earlier post (if correct) there is an acquisition (of a right) but no corresponding disposal and so the “market value” rule does not apply [TCGA 1992 s 17(2)]; in which case the base cost of the right would seem to be nil. The execution of a disclaimer is a disposal (of a right) for CGT without any corresponding acquisition; in which case the “market value” rule applies [TCGA 1992 s 17(1)]. Hence, a capital gain arises.
Malcolm Finney
Perhaps I went off too much of a tangent. My point regarding the CGT was not based on a disclaimed gift, but rather, gifting the property back in which case the acquisition value would be the value at the time of the gift to them.
From an IHT point of view the children make a PET. As for father, he may have a PET on his clock, as well as ownership of the house. That would have potential IHT implications.
He Could start paying full market rent to the children so a PET start to run from now so after 7 years it falls outside of his estate as that appears to have been the original intention. the negligence claim may be that the advisor did not tell him of the need to pay full market rent to avoid a GROB if he dies within 7 years of starting to do so.
Thank you for all your inputs, much appreciated. All in all it shows up all the potential problems I foresee, ie GROB, CGT, PET etc. Unfortunately I think there is a lack of evidence to show the ‘bad’ advice he was given, eg will save you IHT etc, hence may be difficult to challenge the will writers. However, that may be my first port of call.