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Where Taxpayers and Advisers Meet

Trust with no assets

AlanStatham
Posts:3
Joined:Tue May 17, 2022 8:42 pm
Trust with no assets

Postby AlanStatham » Fri May 27, 2022 7:32 am

Spouse 1 died in 2004, leaving a will appointing trustees for an NRB discretionary trust.
Trustees were Spouse 2 and family solicitor.
Stated in the will is that spouse 2 inherits remains of spouse 1 estate.
Probate was granted with assets below NRB at the time, being half the value of their property.

Spouse 2 died in 2021 leaving all assets to three children and small fixed amounts to grandchildren. Estimate of current estate value is £950,000.

A trawl of paperwork has resulted in no proof showing any asset transfer to trust. We suspect trust was setup by spouse 1 but no assets transferred. Solicitor for Spouse 2 estate has said that if no proof of asset transfer can be shown, Spouse 1 NRB will be lost on the assumption that it was used after spouse 1 death. RNRB can still be used however.

I have queried why no asset transfer into trust doesn't default to position as if no trust existed and NRB can be used. Answer seems to be that this would be seen by HMRC as attempting to gain a tax advantage.

Therefore burden of proof is either;
1. Prove asset transfer, in which case amount in trust can be used to offset estate value.
2. Prove no asset transfer, in which case we can use 325,000 NRB from Spouse 1.
3. Prove neither, in which case HMRC assumes NRB was used in Spouse 1 estate and is no longer available to offset Spouse 1 estate value.

We are currently in situation 3.


Firstly, I would welcome comments or corrections in my assumptions above, in case I have misunderstood. (Please! I am not legally trained, so any assistance with as simple language as possble would be much appreciated).

Secondly, is it worth persuading solicitor to argue our position with HMRC for leniency because of lack of evidence either way? Would a written statement from Solicitor trustee of Spouse 1 that he signed nor received no paperwork regarding asset transfer be sufficient for proof to HMRC? What would you do in this situation? It's a question of approximately £130,000 in tax.

Many Thanks


AS

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Trust with no assets

Postby AGoodman » Fri May 27, 2022 12:56 pm

This is a very common situation as families did not deal with estates properly.

You have not mentioned if the property was transferred at all.

If not, I would say that the estate of spouse 1 still has not been administered and should be now - the entire estate is due to the trust (likely the executors in their capacity as trustees of the discretionary trust). This should not be ignored.

The spouse 1 nil rate band would therefore be used up proportionately according to the value of the assets vs the NRB at the time.

On paper, the executors would make an appropriation of the half share to the trust (which may have happened at the time) and the trust could now make an appointment to the relevant beneficiaries. There may well be inheritance tax accounts to file for the 10 year anniversary of the trust and the distribution exit charge - both events may (or may not) also carry small IHT charges. There will also be a CGT charge on the appointment out but this might be covered by PPR assuming spouse 2 was a beneficiary. A formal election would be required.

I don't see why any of your 1-3 should apply.

AlanStatham
Posts:3
Joined:Tue May 17, 2022 8:42 pm

Re: Trust with no assets

Postby AlanStatham » Fri May 27, 2022 1:25 pm

That’s really helpful, and this can all happen now, eighteen years after the trust was declared in Spouse 1 will in 2004?

BTW, the property was not transferred and ownership went to spouse 2.

AS

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Trust with no assets

Postby AGoodman » Mon May 30, 2022 4:08 pm

Yes

Legal title to the property would have passed to S2 but the tenancy in common remains in place and the estate will still have a one half beneficial interest.

If the executors and trustees are the same people, as they likely are, you can assume that the one half interest has passed automatically to the trust and so the trust is properly constituted. All that remains to do is appoint the interest to the beneficiaries using a deed of appointment. If there is a Form A restriction on the property title, you may need to apply to remove it - a conveyancer will know if it is necessary or can be done as part of a sale/transfer.

The trust will likely have to file an IHT100 and also register to the trust register.

AlanStatham
Posts:3
Joined:Tue May 17, 2022 8:42 pm

Re: Trust with no assets

Postby AlanStatham » Mon May 30, 2022 5:06 pm

Okay, so now it’s a question of persuading our solicitor. Understandably, there is some reluctance there. They did describe a possible way through, which may have been the same as what you’ve just described. The wording was different. Yours was clearer.

We’ve submitted documents to them, drawn up at the time to check to see if they take us over the proof threshold with regards to convincing HMRC. I highly doubt it though.

If not, we’re getting together a list of trust specialists that can provide a second opinion and possibly do the paperwork for us to get everything lined up properly.

Thanks for the clarity and the helpful responses.

AS


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