Half house in trust and possible IIP

[Inquisitive]

After my wife's death two years ago I inherited the house by survivorship. I then placed half the house in the discretionary trust established by my wife's will by means of a deed of variation. I am a trustee and beneficiary, other beneficiaries being my children. It's been suggested that it may be argued that since I occupy the house I have an interest in possession, and that I should pay rent to the trust to avoid this. Would such action be a foolproof way of avoiding an IIP?

Inquisitive

[cranleys]

Your suggestion is correct. The changes occuring in 2005 will further this need.

Colin Davison
Cranleys Chartered Accountants
Editor of Property Tax Secrets 2005
colin@cranleys.co.uk 01256-766655

[Need to know More!]

My Mother died in February with a Discretionary Trust Will in place. We have been granted probate of her estate. My Father is looking to move closer to my sister and I but as yet hasn't sold. Even when he does it is likely that he will need to use a large chunk of that money to purchase a new house. This would mean that Mum's trust would have £75,000 cash which is from her savings and shares and then probably the difference as an IOU (believe the term is a Loan Load), from the sale of their home when he sells it.
1) So would he need to pay back a rent to the trust to keep this firmly in the fence of my Mum's Estate?
2) Currently we all 3 are Trustees, would it be better if he was not one of them, so that the TAX man wouldn't deem he was benefiting from my Mum's Estate. We 3 have a fantastic relationship and my sister and I would want his interests to always be the priority.
3)When is the Trust actually 'Set Up', is it by default when the person dies as it's part of the will, or is it when you have registered the Trust with the Inland Revenue?

Thanks to anyone that could kindly answer the above.

[bob.fraser@towrylaw.]

Dear "Need to Know",
This looks as if you may be over-complicating a problem that can be more simply solved.
Why is your father needing to benefit through the trust (I am presuming that he is in fact included as a class of beneficiary) when he could simply have inherited from your mother? Provided that they were still married, there is no inheritance tax between spouses.
A will trust is established through the will on death, but don't forget that a will can be varied within 2 years of the death by a Deed of Variation if all beneficiaries are agreed.
There is a lot more that needs to be clarified before any sensible answer can be given.
If you want to talk this through, phone me.

Bob Fraser, FSFA
Associate Director, Rensburg
02890321002