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IIP Trust Termination - A Dangerous Distribution?

Life Tenant Dies - Maybe Bankrupt, Maybe Not, Children Maybe Executors, Maybe Not

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Really old interest in possession trust comes to an end on death of widowed life tenant with quoted shares worth £300,000.

The three children of the life tenant are now wanting their £100,000 each. Trustee (the Aunt) does not want to release the money to the nephews and niece until she knows any IHT on the £300,000 has been paid (maximum @ 40% = £120,000).

There is a very (understandable) acrimonious relationship between the trustee Aunt and her nephews and niece.

Problem is, the nephews and niece say their widowed mother (the life tenant) died bankrupt and that no solicitor will be appointed to wind up her estate (no point). They can produce a paper Will showing them to be the Executors, but since no Probate will be applied for, how do we know if they are definitely the executors if the Will is not going to be proved.

There is a question mark over the value of the life tenant's estate. There is a massive chance that the life tenant did die bankrupt (due to the cause of the acrimony). There is almost no communication between trustee Aunt and nephews and niece, so there is a lot of speculation and guesswork going on within the family.

The life tenant's husband died about ten years earlier under mysterious circumstances. A death certificate could not be issued for a long time because cause of death could not be ascertained for some considerable time. Was it suicide or not. No one knows, and the coroner lost the blood samples, so that was one large mess up. As a consequence, no-one knows on the Aunt's side of the family if there was a life insurance payout to the life tenant's husband's estate (of which the life tenant would have been a beneficiary). The trustee suspects that the life insurance company refused to pay out, but does not know for sure. It did "appear" when the life tenant died that she was living in a state of impoverishment.

The trustee Aunt's own solicitor is pressing her to give the nephews/niece all of the money. But the trustee is holding back because there is no official proof of executorship and she does not want HMRC knocking on her door asking for up to £120,000. Maybe she should just retain the £120,000 and distribute the rest.

How does the trustee Aunt protect her own interests here. There is just so much vagueness.

P.S. Just found out that solicitor for trustee has just submitted IHT account for the IIP trust termination to HMRC, so HMRC will be aware of the £300,000 death value now.

Replies (8)

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By Tax Dragon
16th Jan 2020 16:59

NYP - it's all legal stuff. The solicitor should be suggesting the solution (indemnities?)

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
16th Jan 2020 17:07

Possible, but could be tricky. the issuer of any indemnity will likely insist all steps that can be taken are taken before issuing a policy ,and the one step that can be taken is to have the application for probate for the life tenant actually made- I can foresee a very long time lag here until matters resolve themselves.

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Replying to DJKL:
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By Tax Dragon
16th Jan 2020 17:20

Well, they want the money. The steps you suggest seem to be on them as next of kin. So pass the buck back to them.

Who is Penny acting for?

(plus... as per my first three letters, it's not her problem whatever the answer to that last question. Unless she's the Aunt/offspring of course!)

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By Roland195
16th Jan 2020 17:41

Glad to see you are so up to date with you tax returns you can take on the problems of the legal profession.

I'm assuming the intransigent Trustee Aunt is your client in which case, if she won't take the advice of her own solicitor, why do you think she will listen to you?

The cynic in me believes that even if the potential tax liability can be conclusively disproved she will come up with another reason not to make the payments.

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By chicken farmer
16th Jan 2020 17:49

S. 200(1)(b) IHTA puts the liability on the trustee in respect of tax attributable to the value of the property comprised in the settlement. It would be foolish to distribute the funds to the remaindermen and expect/hope that they will pay the tax.

All the comments about the life tenant and her late husband's estates and whether the remaindermen are or are not executors of the life tenant are of no concern to the trustee. The only question is whether any nil rate band is to be taken into account in calculating the trustee's liability. Prudence suggests that it should be assumed that the liability is £120K until it is shown to be otherwise.

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By mumpin
17th Jan 2020 10:04

There's scope to sell the plot to Midsomer Murders!

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By bernard michael
17th Jan 2020 10:14

The "beneficiaries" should be told that no money is forthcoming until probate is granted and IHT is paid. Don't get further involved
A solicitor has been instructed by the Trustee so he/she has the problem not you.
Seemples !!

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Replying to bernard michael:
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By Tax Dragon
17th Jan 2020 10:24

I agree completely in theory, but the situation is presumably that the trustee has spoken with the OP because the solicitor has said pay the money over, and the trustee - for understandable reasons - has concerns with that advice.

Dealing with the issue is certainly not the OP's problem. Dealing with the client is.

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