Will Trust - Moving into care home

GolfPutt21

Hi all,

I am in the early stages with this client and haven't seen details of the trust yet, only what they have told me. They have told me the following;

Mr and Mrs have a property as tenants in common (50% each), Mrs died several years ago and Mr remained living in the house. In Mrs Will she put her 50% ownership of the property in a will trust to her 3 sons (1/3 each).

Mr is now having to move out of the home and into a care home full time so the children are selling the home, the home is estimated to sell for £400k. Mr 50% share (£200k) is going to be used to pay for care home fees. The children have been told by the solicitor that their 1/3 each share of 50% from the property sale (c£66,660) will have to be invested and the investment will need to produce interest that Mr can only benefit from until he dies and then the children can use the money.

This is all the information I have so far and I haven't seen the Will or trust deed and I am not 100% sure on trustees, but if anything can shed some light on this or have experienced something similar any information would be appreciated as I haven't come across something like this before.

Thanks

Sean_Fernyhough

Mrs' Will Trust is likely to have created a right for Mr to occupy the whole house during his lifetime. In effect creating a life tenancy in half the property to which the children are absolutely entitled upon Mr's death.

les_cameron

The right to occupy the house is an interest in possession. And it usually follows through that if the house is turned into cash then the beneficiary will have an entitlement to income (unless the deed has something to the contrary.

So you are basically having to invest for an IIP trust. If the children are to get the money you would need to look for advancement of capital clauses and / or the beneficiary might be able to give up their IIP.

Quite complex stuff - solicitor seems to be on their game though.

GolfPutt21

Thank you both. Having more information on it now that it is a IIP trust and Mr was the life tenant and the 3 children are the remaindermen, and 1 of the children and solicitor are the trustees.

@les_cameron I think you have it spot on, the life tenant is entitled to income from the cash from the house sale.

From an investment prospective my assumption would be that the funds would need to be invested in income producing assets (e.g not an investment bond) and most likely an OEIC/GIA.

Thoughts?

benjaminfabi

Hi

Qualifying IIP means:

Income belongs to the life tenant. If mandated to the life tenant directly it is taxed in their hands - no tax return for trustees.

Growth belongs to the remaindermen. Capital gains are taxed on the trustees. If you use a couple of multi-asset funds that target both growth and income, you'll avoid the routine rebalancing needs of an MPS and therefore should avoid routine CGT during the life tenant's lifetime - no tax return for trustees.

Then, when life tenant dies (assuming funds don't need changing until then), you can potentially transfer assets directly to beneficiaries and use holdover relief to avoid crystallising a tax liability at trust rates.

GolfPutt21

Thank you all, very helpful!

les_cameron

Also read the deed and see if you are allowed to give capital to the life tenant - if so you can consider bonds. And non-income producing assets are easier to run in a trust - you can still have whatever OEICs are flavour of the month just have them in a tax wrapper.

It also may be acceptable not to generate any income and solely target growth if the life tenant doesn't need the income (but I think the care home might have something to say about that.

Or have a blend depending on the balance of capital growth / income you want.

Remember the CGT on a non bare trust falls on the trustees.

SIFA guide to trustee investment may be useful.

https://www.mandg.com/dam/pru/shared/documents/en/pruag02068.pdf