Leveraging a Property in Trust
Discussion
I've recently lost my Uncle, who in his Will, left his estate to my kids (currently 10 and 11) until they turn 21.
The only real thing he left other than a couple of thousand for Battersea dogs, and a couple of thousand in cash that covered funeral costs etc. was his unencumbered flat, worth maybe 200k.
Now, knowing nothing about Wills and Trusts, would it be possible to leverage the asset, I have no plans to sell it, I would like to rent it until the kids can decide what they want to do with it, (it also requires quite a bit of updating as he was a heavy smoker, and quite immobile in his later years). I would also like to possibly use some equity to put aside for Uni fees/Education etc whilst earning a small monthly income that can also be put aside in an account for them to build up and use, should they wish to keep it when the time comes and take it over.
I'm appointed Trustee, but that's pretty much where my knowledge ends unfortunately, so any advice would be greatly appreciated.
I have a couple of meetings with solicitors and have spoken to a couple, but their advice seems to conflict somewhat, so if anyone can put any options or ideas into idiot form for me!
The only real thing he left other than a couple of thousand for Battersea dogs, and a couple of thousand in cash that covered funeral costs etc. was his unencumbered flat, worth maybe 200k.
Now, knowing nothing about Wills and Trusts, would it be possible to leverage the asset, I have no plans to sell it, I would like to rent it until the kids can decide what they want to do with it, (it also requires quite a bit of updating as he was a heavy smoker, and quite immobile in his later years). I would also like to possibly use some equity to put aside for Uni fees/Education etc whilst earning a small monthly income that can also be put aside in an account for them to build up and use, should they wish to keep it when the time comes and take it over.
I'm appointed Trustee, but that's pretty much where my knowledge ends unfortunately, so any advice would be greatly appreciated.
I have a couple of meetings with solicitors and have spoken to a couple, but their advice seems to conflict somewhat, so if anyone can put any options or ideas into idiot form for me!
The Statutory position on trusts can be radically altered by express provisions in the Trust Instrument (which creates the trust).
These alterations can have the effect both to WIDEN or to RESTRICT the powers of the trustee(s) as compared to the default/statutory provision (were express provisions not made in the governing instrument) as regards use of property and particularly, power of investment.
Trust law also applies to Trustees a POSITIVE OBLIGATION to actively seek and sensibly invest Trust Property, and it is settled law that (for example when the Trust Property takes the form of a house) renting the house out is likely to be seen to uphold that obligation.
Leaving the money in a bank earning five-eights of f
k-all squared would not be a good idea, but since interest rates are on the up, that might now be seen to be a reasonable investment, for example (I get we're talking about Trust Property in the form of Real Estate here)
IAALBNYL - so the first thing I would say beyond the above is spend (what will be modest) money getting some professional advice on:
1. the powers given (or removed) by the Trust Instrument; and,
2. your obligations as a/the Trustee
and take it from there.
It's been a while since I studied this in detail, but it would strike me as very odd were the Trust Instrument to remove the power to rent out trust property in England and Wales and apply the income to the benefit of the Beneficiaries.
It would also be 'normal' for the trust to require the Trustee (you) to account for the profits to the Beneficiaries or (given your childrens' ages) YOU until they are whatever age the Trust dictates.
Once they are both 21, (subject to the other requirements set-out in the landmark case of Saunders & Vautier) they can "bust the trust" and sell the property to split the proceeds and buy (or at least get a deposit for) one each of their own.
Until then, this gift should be of real help to your children !
These alterations can have the effect both to WIDEN or to RESTRICT the powers of the trustee(s) as compared to the default/statutory provision (were express provisions not made in the governing instrument) as regards use of property and particularly, power of investment.
Trust law also applies to Trustees a POSITIVE OBLIGATION to actively seek and sensibly invest Trust Property, and it is settled law that (for example when the Trust Property takes the form of a house) renting the house out is likely to be seen to uphold that obligation.
Leaving the money in a bank earning five-eights of f
k-all squared would not be a good idea, but since interest rates are on the up, that might now be seen to be a reasonable investment, for example (I get we're talking about Trust Property in the form of Real Estate here)IAALBNYL - so the first thing I would say beyond the above is spend (what will be modest) money getting some professional advice on:
1. the powers given (or removed) by the Trust Instrument; and,
2. your obligations as a/the Trustee
and take it from there.
It's been a while since I studied this in detail, but it would strike me as very odd were the Trust Instrument to remove the power to rent out trust property in England and Wales and apply the income to the benefit of the Beneficiaries.
It would also be 'normal' for the trust to require the Trustee (you) to account for the profits to the Beneficiaries or (given your childrens' ages) YOU until they are whatever age the Trust dictates.
Once they are both 21, (subject to the other requirements set-out in the landmark case of Saunders & Vautier) they can "bust the trust" and sell the property to split the proceeds and buy (or at least get a deposit for) one each of their own.
Until then, this gift should be of real help to your children !
And to add what is said above, assuming you have the powers to be able to borrow against trust assets finding a lender that will is a whole new ball game, a specialist broker will be required since very few lenders will entertain it I believe since the trustee is the legal owner but not the beneficial owner of the property.
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