The Longs were replaced as trustees by the couple and their son / step-son (D) by a rogue employee of Universal who obtained all the original paperwork on their behalf. The Land registry and deeds are registered in their names and are therefore fine.
My question is whether the Trust Deed should, or can, effectively be rewritten. The Family Trust gives the settlor a life interest and then is a Discretionary Trust for the spouse and D – this worries me as they are all Trustees now. The administrative powers are wide and could be open to abuse, in my opinion.
As far as I can see wrapping things up isn’t a viable option – I believe the trust creation (2016) is a chargeable lifetime transfer and simply ending the trusts severely limits the nil-rate bands available in at least the short to medium term. Please correct me if I’m wrong as lots of people seem to be under the impression they can simply appoint the property out and end the trusts without penalty, due to the trust property counting as part of the settlors estate for IHT purposes.
Has anyone carried out a full forensic examination of the trusts and come up with options (using the powers to create new trusts or change administrative powers) for those who are stuck with them? Would the creation of a new settlement be a chargeable event for IHT to the settlors? I presume not but there seem to be so many traps in trusts.
The Deans Legal Services
I assume Universal Trustees’ sales pitch was that the trust would shelter property from the local authority, ignoring - or misunderstanding - the inheritance tax consequences, as well as the ‘deliberate deprivation’ aspects… The initial act was of course a chargeable transfer, albeit typically thought to be within the NRB, but also resulted in a GROB.
Currently therefore the property in the trust would be treated as part of the settlor’s estate on his death for IHT purposes. If death were to be within 7 years of the initial gift into trust, the IHT (Double Charges Relief) Regulations [SI. 1987/1130] would apply; effectively to charge whichever is the higher liability on the property at the date of death or on its way into the trust.
An appointment now to ‘bust’ the trust, perhaps by an absolute appointment in favour of the life tenant, (or anyone else) would be a deemed PET under S.102(4) FA 1986, which would have to be survived by 7 years to escape tax cost. This is so, even if the property really becomes part of the settlor’s estate. Again SI 1987/1130 may become relevant.
I attended one of their seminars out of curiosity a few years ago and the marketing flyer and majority of the pitch clearly indicated that their magical trusts would ensure that no-one would ever pay any care fees again. They did very briefly raise the issue of deliberate deprivation, but vaguely dressed it up as simplifying the probate process, saving probate fees (all £255 of them) and protection from creditors which clearly meant that the main purpose was not to avoid paying care fees. The presentation was, I have to say, pretty slick and there was lots of head nodding from the generally elderly audience.
I cornered one of their lawyers after the event and pointed out the IHT issues (particularly as we were in the South East where the nil rate band doesn’t get you that much) and fact that these were clearly marketed as care fee schemes and he agreed with me entirely and implied he’d be leaving the organisation soon due to the improper practices he’d discovered since joining, but it seems despite the fact that they knew it probably wouldn’t work it didn’t stop them selling thousands of trusts for several thousand a go…
I’ve met 3 ‘victims’ now and they are all embarrassed and devastated.
I try and offer reassurance that this was a slick operation but its cost a lot of money, and will cost more to put right.
This practice is illegal (preparing inter vivos Trust documents are reserved legal activity) and more needs to be done. Several ex-employee chancers seem to be rising out of the ashes to set up similar
The Deans Legal Services
If the appointment is made back to the original settlor would this still be caught by S.102(4) FA 1986 and be deemed a PET?
Northwood Banks & Co Ltd
Yes, it would still be a deemed PET. Such PETS are de-personalised. Oddly, if the reservation of benefit still exists at death, so that S.102(3) applies, there is no charge if the property is actually in the estate of the deceased.
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