Life Time Interest Trusts

[kumar9]

I set up ( settlor) a Life Time interest Trust for my brother (unmarried) to be able to live in my flat for life. Sadly he passed away recently & the trustees (myself , my two sisters) wish to pass the title of the property to myself & my remaining brother as tenants in common !
I am non resident non domiciled for UK tax purposes, my brother is UK resident, UK domiciled for tax purposes.
What is the best way to do it ? Ideally I would want to end the trust & own the property (myself & my brother) as tenants in common OUTSIDE a trust . What would be the tax implications?
Trustees have wide powers & discretion , property has present value of just over 200 K & my bereaved brother lived there for the past 20+ years !
Thanks
Kumar

[maths]

I assume the flat is in the UK and the trust is a UK trust.

What does the trust provide is to happen on the death of the interest in possession beneficiary (i.e. your brother)?

Is the flat to be then held on discretionary trust OR is the flat to become the absolute property of one of the beneficiaries? It appears the former?

If it is the former then the trustees may simply appoint the flat out to you/brother in whatever %s desired.

On brother's death the flat would have formed part of his estate for IHT.

The trustees on his death would have been deemed to have sold and reacquired the flat at its then market value; no CGT would have arisen.

If the trustees appoint the flat out to you/brother any CGT and IHT charge is unlikely.

[kumar9]

Hi Maths
thanks for the reply
Yes the property is in the UK & the Trust is in the UK
In case of death of interest in possession , trustees have complete discretion to pass the beneficial interest to any brother or sister of the settlor .
It seems flat to be held on discretionary trust but we would like to own it OUTSIDE the Trust structure. Can the Trust be wound up ? it was irrevocable as far as the original interest in possession ie my deceased brother .
Our wish is to rent the flat out in case we become joint owners as we both have a primary residence already.
Then I guess we would each pay tax on the income & CGT if we sold the property ? Would count in our IHT valuation if owned OUTSIDE the trust but NOT if inside the Trust ?
Thanks
kumar

[AGoodman]

Are you a beneficiary of the trust?

If you are a beneficiary then the entire property will be in your estate while in the trust. It’s called a reservation of benefit.

[kumar9]

Thank you Mr A Goodman
Currently neither me nor my brother ( who the trustees now wish to give owner ship of the property as tenants in common) are beneficiaries of the trust.
I am the settlor & I believe the settlor cannot be a beneficiary in the tryst format anyway ??
Seems we might have to terminate the trust ??
Thanks
Kumar

[AGoodman]

Then you have more than tax problems.

A settlor can be a beneficiary. It just has tax consequences. If you are not, I suspect you are also expressly excluded from benefit.

You can terminate the trust by distributing to one or more beneficiaries; you can’t distribute to a non-beneficiary. I don’t know if there is a power to add beneficiaries (if so, I doubt you can be added) or an express power of revocation.

Just to complicate things, if you distribute to a sister in the expectation she will gift it back to you and your brother then that is likely voidable as a breach of trust as well.

Looks like you need a quick and dirty solution by agreement with all the beneficiaries to avoid any of them having a claim against the trustees (you may take a view on this).

Best also get an expert to review the trust deed.

[kumar9]

Thank you for your input Sir
Further study of the Trust deed suggests
1.I am not an cannot be a beneficiary under the Trust conditions
2.My only surviving Brother is a beneficiary
3.Trustees have the power to nominate my brother as Sole owner of the flat
4.Then end the Trust
5.Then my brother can give me half his share ( there could be tax consequences ??)
6.That brother , due to his advancing age , might prefer to jump a generation or even two by suggesting to the trustees to give sole ownership of the flat to his son or grand daughter ( only 1 yr old ?/), them pass me half share
7.Trustees have very wide powers & discretion
Certainly need to get tax advice then ??
Thanks
Kumar

[kumar9]

Apparently Settlor has the power to suggest to the Trustees a beneficiary not currently listed in the Trust Deed & Trustees can accept the suggestion.
The suggested beneficiary would be my brothers son ( to skip a generation)
Question is can 50 % ownership be passed on to me the settlor, AFTER the trust is terminated ,cleanly ?
If anyone is qualified , familiar with both the Trust & tax implication , I would be prepared to pay agreed fees .
Any takers ?
Thanks

[kumar9]

''Just to complicate things, if you distribute to a sister in the expectation she will gift it back to you and your brother then that is likely voidable as a breach of trust as well.''
Just curious to know if I am given half a share in the Property AFTER the trust has been ended , how & why would it breach the terms of the Trust which has already been terminated ??
Thanks