Discretionary Nil-rate Band Trust
Discussion
I am currently processing the estate of my late mother, whose will is of the "discretionary nil-rate band trust" variety (written just before the law changed to allow the transfer of unused nil-rate band between spouses, thus rendering this type of mechanism redundant).
My sister and I are the only two remaining executors and trustees, our father having also died and the other executor/trustee (Mum & Dad's financial advisor) having renounced his executorship and withdrawn from the trust. My sister and I get on well, and she is trusting me with pretty much all of the financial work and administration of the estates.
I have just asked my solicitor to draw up a Deed to enable me to pay the remaining IHT for my Dad's estate using funds from Mum's trust. This is a bit of a faff, because it means waiting for him to write the Deed, then getting both me and my sister to sign it and get witnesses.
My question is this: What would the consequences be if I simply didn't bother with a Deed? If I simply went ahead and did a BACS transfer out of Mum's executor account? The bank doesn't know that the funds in the account come under a trust, so there's nothing stopping me.
Technically I'd be breaching the trust I suppose. It occurs to me that it might even be a criminal offence, which clearly I'd like to avoid. Or is it simply that other trustees could theoretically have a civil claim against me if they believe they have suffered a loss as a result? The latter is not at all likely, since the only reason for making any future transfers out of the account would be to distribute funds between me and my sister (the only two beneficiaries).
If there were more trustees/executors, and particularly if they didn't know and/or trust each other as closely as my sister and I do, then I can see the reason for controlling the withdrawal of money from the trust. But in practice it all seems a bit pointless in our case. Do I still need to go through this palaver?
My sister and I are the only two remaining executors and trustees, our father having also died and the other executor/trustee (Mum & Dad's financial advisor) having renounced his executorship and withdrawn from the trust. My sister and I get on well, and she is trusting me with pretty much all of the financial work and administration of the estates.
I have just asked my solicitor to draw up a Deed to enable me to pay the remaining IHT for my Dad's estate using funds from Mum's trust. This is a bit of a faff, because it means waiting for him to write the Deed, then getting both me and my sister to sign it and get witnesses.
My question is this: What would the consequences be if I simply didn't bother with a Deed? If I simply went ahead and did a BACS transfer out of Mum's executor account? The bank doesn't know that the funds in the account come under a trust, so there's nothing stopping me.
Technically I'd be breaching the trust I suppose. It occurs to me that it might even be a criminal offence, which clearly I'd like to avoid. Or is it simply that other trustees could theoretically have a civil claim against me if they believe they have suffered a loss as a result? The latter is not at all likely, since the only reason for making any future transfers out of the account would be to distribute funds between me and my sister (the only two beneficiaries).
If there were more trustees/executors, and particularly if they didn't know and/or trust each other as closely as my sister and I do, then I can see the reason for controlling the withdrawal of money from the trust. But in practice it all seems a bit pointless in our case. Do I still need to go through this palaver?
Edited by Dr Mike Oxgreen on Saturday 17th June 07:47
You're both a trustee and an executor. The Trust is a discretionary one, in that as a trusteel you can within reason do with it what you want. I can't see any legal recourse on behalf of any of the other trustees that could be taken. If acting as executor you charged unrealistic expenses, then awarded that to yourself as a trustee you may open yourself up to challenge. No need for any deed of variation or similar to do what you've reasonably suggested. If your solicitor has suggested otherwise, he's guarding against the sort of exception I outlined or just making sure, for the appropriate fee. Crack on, you seem to have a very common sense approach.
Part of the point of the discretionary trust is that trustees have absolute discretion over who, when and what they distribute from the trust. You should be fine to make a distribution, assuming agreement from all/majority of trustees.
I'd suggest also asking an accountant about how to distribute the funds. Depending on what the trust holds the potential tax, CGT or Income, could fall on the trust itself or the beneficary receiving the distribution. The rates of which potentially could vary enormously as a result.
For example, a non tax paying beneficiary may be able receive some without any tax being due whilst the trust would typically be at the highest personal rate, 45% for income as things stand.
I'd suggest also asking an accountant about how to distribute the funds. Depending on what the trust holds the potential tax, CGT or Income, could fall on the trust itself or the beneficary receiving the distribution. The rates of which potentially could vary enormously as a result.
For example, a non tax paying beneficiary may be able receive some without any tax being due whilst the trust would typically be at the highest personal rate, 45% for income as things stand.
Thanks ellroy. Indeed, I am talking to a tax accountant as well as the solicitor.
In fact the situation is a good deal more complex than I described. My Mum actually died 6 years ago and Dad died in January. When I started investigating, I realised that Dad never executed Mum's will - he applied for probate but hadn't taken any advice and made many errors, so his application stalled. I've now withdrawn that application and started again.
But this does mean that there's a 6 year gap between Mum's death and now, so yes there is quite a bit of CGT to pay on her share of the house (owned as tenants in common) and on her ISAs. Between the accountant and the solicitor, they're looking at ways of optimising the usage of our CGT allowances.
In fact the situation is a good deal more complex than I described. My Mum actually died 6 years ago and Dad died in January. When I started investigating, I realised that Dad never executed Mum's will - he applied for probate but hadn't taken any advice and made many errors, so his application stalled. I've now withdrawn that application and started again.
But this does mean that there's a 6 year gap between Mum's death and now, so yes there is quite a bit of CGT to pay on her share of the house (owned as tenants in common) and on her ISAs. Between the accountant and the solicitor, they're looking at ways of optimising the usage of our CGT allowances.
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