Lots of Moneyand Beneficiaries - DoV to NRB Trust?

[John-the-pilot]

[Are you sitting comfortably? Then I will begin:]

This is a story potentially covering 4 generations.

My aunt died, in autumn 2009, some 21 months ago. That was a time of economic depression.
Aunt was in her late 80’s, a widow but with no children.

The deceased died leaving a will some 20 years out of date. It named me (favourite nephew?) as sole executor.

I’m 56 and have acted as personal representative for several other family members, so I thought the task should be a clerical chore, especially if I could prove aunt’s estate had the benefit of her late husband’s nil rate IHT band..

After settling outstanding liabilities and all taxes, the will endeavoured to leave about 75% of aunt’s estate to her three siblings, with the proviso that should a sibling predecease her then the children (my cousins & I) should inherit their parent’s share.
The other 25% was left as bequests to her late husband’s younger sister, a family friend, three cousins (ie her 2 nephews and a niece and the 4 then young second cousins (ie her great nieces & nephews.) The proviso was that the residuary should be distributed, in the same proportion as the successful bequests, thus inflation proofing the will.

My aunt’s three siblings predeceased her, including her younger sister, who died divorced and childless, so that void bequest fell into the residuary.

Aunt lived frugally in a modest bungalow and after checking the probate registry, to discover that she had inherited all her husband’s estate, I was confident that an IHT exemption of £650K should be enough to prevent HMRC from becoming the 10th and first in line beneficiary.

However aunt had inherited all her husbands estate, which included half of his parents estate plus a quarter of her own parent’s estate.
The total of aunt’s estate was about £900K with an IHT liability of £100K. Most of it was originally property wealth as a result of living inside the M25.
The largest proportion was in cash “bonds”, savings accounts and NS products.

The most contentious issue was the bungalow or more accurately the development site that included a bungalow.
I obtained a valuation of 400K and this was sent to the Valuation Office Agency for validation and was agreed with me in writing.
Some beneficiaries had dreams of renovating and extending it as a money making venture, then perhaps renting it out..
A great nephew and his wife wanted to buy it, but could not raise the mortgage.
I had practical problems keeping the property weather tight.
So I wrote to each beneficiary saying that he/she was beneficially entitled to “x” percent of the property’s and that in future I would be holding this as his/her bare trustee. I got each one to endorse a copy of the letter saying they had received and understood (I also got each one to agree that I could sell the property if I could achieve a premium of 10% over probate valuation.)
I hope this has pushed most of any capital gain into 9 individuals personal nil rate bands.
At first I got several local “sharks” offering well under the probate value. But this spring I found an out of village agent with better cross London marketing and eventually, with three parties bidding up the price, I got the best part of a gross 50K over probate value.

[Are you still with me then I will continue]

As I came to dish out each beneficiaries share, the other nephew, a single child and now a pensioner with a comfortable income and a proud grandfather, has asked me if I could hold my horses, at least as far as his distribution of both estate and proceeds of sale of the house goes.
Please take my word for it that after calculating all the shares via the will, his total share of the estate is in the region of 34%. So the number crunching gives £900k – 100k (IHT) = 800K @ 34% = 272K + 17K of capital gain on the bungalow.=.£289K
He is thinking that he wants to set up a “nil rate band discretionary trust”.

Bully for him, as long as he pays the legal costs, I have no objection in principle to a Deed of Variation to redirect the elder nephew’s share into a trust for his heirs.

However will I have to tear up his individual “memorandum of appropriation” letter and report the details of his proceeds from the whole estate to the capital taxes office and pay CGT on it?

Somewhere I seem to remember reading that both the income (higher rate) tax and any capital gains are the responsibility of the individual beneficiary up to the date of creation of a DoV that redirects his interest elsewhere?

Do I need to make the other beneficiaries aware of a DoV – my instinct is to let sleeping dogs lie ?

[Lee Young]

If the nephew wants to vary his portion of the estate he does not need your permission or involvement to do it (as it will not increase the IHT) and does not affect anyone else or the appropriation you have done regarding the property, or the resulting CGT bill for each of the beneficiairies. It will only be relevant to any of the other beneficiaires if they want to do the same as the two trusts would then be related for IHT pruposes.

[John-the-pilot]

Many thanks Lee your reply sounds like good news from my point of view.

I've already given each beneficiary a copy of the will to explain how it comes about that each individual gets their share.
[Oh it has been like herding cats ]

So presumably he will get his solicitor to knock up something that gives a brief introduction of where we are and then says that clauses A (his parent's share) clause B (his personal share) and clause C (the residuary) should be rewritten substituting "the XYZ discretionary trust" and then goes on to list the rules of the trust?

As there are only 3 months to go until the 2 years are up; the oldest nephew had better get his skates on to meet the deadline.

At the moment I am keeping back a modest sum as I have yet to get the final clearance from the Inheritance Tax office (I am finding some extra assets and liabilities, fairly trivial sums in the grand total of things) that were the property of the divorcee and fall into the estate of my aunt. Must I get my skates on and have this buttoned up before the 2 year deadline or can I just give the new trust a note saying I am holding a sum as a bare trustee for the new trust?

[Lee Young]

The two year deadline is absolute for the beneficiary, but does not affect your role as executor. Your administration of the estate will finish when you have ascertained the residue and until the outstanding tax issues are resolved, the residue is not ascertained.