The Lemon Fool

A mother of three adult children puts her house in a discretionary Trust with the three children as Trustees.
The husband of one of them now wants a divorce.

The Trust Deed gives the Trustees wide discretion as to how the value of Trust asset – the house – is to be disposed after the death of the mother.
(In passing, the Trustees are on the best of terms with each other.)

During the future divorce settlement, what claim would the divorcing husband be likely to have on the asset.

To pre-empt a question, I am not personally involved and have no idea why the house was in Trust in the first place!

As far as I can see the Trustees are the Trustees and their spouses are not involved. The divorcing partner is not a Trustee and even before the divorce has no say in what the Trustees decide. In the event of the mother's death after they divorce, this has no effect on any divorce settlement.

IANAL

TJH

We don't know enough to make any firm comments. I assume that the mother has a liferent over the house, and I can't imagine the court disturbing that. We don't know why the house is in trust - it is an odd arrangement, but the reasons might cast light on how the court would view the trust. If the trust was found to be nuptial, the court has very wide discretion.

Absent fine detail on the discretion given in the trust, we can't know what expectations the divorcing wife has of its assets. Has she remainderman rights over any of the trust ? If she has, that remainder could be treated as an asset. Not necessarily to be taken from her; but if, say, she raises a claim on the husband's pension, he can point to the trust assets and ask for offset.

Many thanks for that.
I am awaiting a copy of the Trust Deed - not to give legal advice* but to better guide any conversations I have with them. In particular, I want to ascertain how much discretion the Trustees have (vs specified remainderman obligations)

I was also very surprised to hear that the house was in Trust, not in a Will Trust but already in Trust, with the liferent mother currently in residence.

genou's point: "we can't know what expectations the divorcing wife has of its assets. Has she remainderman rights over any of the trust ? If she has, that remainder could be treated as an asset. Not necessarily to be taken from her; but if, say, she raises a claim on the husband's pension, he can point to the trust assets and ask for offset." is precisely what I am trying to clarify


* I have told the Trustees that they should plan to see a STEP or similar solicitor

Had the house been left by Will to the three children, the additional £175K residence nil rate band allowance against mother’s IHT would be available.
Am I right in thinking that there is no equivalent for the house now in Trust ?

stewamax wrote:Had the house been left by Will to the three children, the additional £175K residence nil rate band allowance against mother’s IHT would be available.
Am I right in thinking that there is no equivalent for the house now in Trust ?

Yes - no-one is "closely inheriting" the house, so there is no NRNB.

Many thanks genou.
Then it puzzles me yet more why the house was ever put in Trust in the first place! I think mother had a 'Financial Advisor...
And I cannot wait to see the Trust Deed

genou wrote:

stewamax wrote:Had the house been left by Will to the three children, the additional £175K residence nil rate band allowance against mother’s IHT would be available.
Am I right in thinking that there is no equivalent for the house now in Trust ?

Yes - no-one is "closely inheriting" the house, so there is no NRNB.

I’m not so sure about this.
If mother still lives in the property then she retains “beneficial ownership” (a fabrication of the tax office). The taxman will judge no PET has yet occurred, so it is possible the property may still be eligible for RNRB. Beneficial ownership can work both ways!

The key question for RNRB is, at what point “beneficial ownership” passes to the trust. If mum goes into a home and gives up her beneficial interest to the trust, then no RNRB. But if she dies whilst still the beneficial owner, then RNRB is still available.

Is the reason for your trust to try and protect the property from care home fees? If so, I don’t think it will work. Local authorities can ignore such obvious gifting of assets these days.

However, I think this helps in your divorce scenario since the trustee has no asset to claim.

Gryff

gryffron wrote:If mother still lives in the property, and continues to do so until her death, then she retains “beneficial ownership” (a fabrication of the tax office). The taxman will judge no PET has yet occurred, so it is possible the property may still be eligible for RNRB. Beneficial ownership can work both ways!
The key question for RNRB is, at what point “beneficial ownership” passes to the trust.

Very interesting... whether mother's settlement of her asset on the Trust would be treated as a lifetime gift with reservation and the PET allowance would then not apply.
And, further to my comment about losing the RNRB, the beneficiaries would, I assume, be liable to pay CGT when they themselves dispose of the house but the Trust itself would be exempt if the Trustees sell the house on the death of liferent assuming that liferent had been living on the house as main residence.

gryffron wrote:

genou wrote:Yes - no-one is "closely inheriting" the house, so there is no NRNB.

I’m not so sure about this.
If mother still lives in the property then she retains “beneficial ownership” (a fabrication of the tax office). The taxman will judge no PET has yet occurred, so it is possible the property may still be eligible for RNRB. Beneficial ownership can work both ways!

The key question for RNRB is, at what point “beneficial ownership” passes to the trust. If mum goes into a home and gives up her beneficial interest to the trust, then no RNRB. But if she dies whilst still the beneficial owner, then RNRB is still available

...

Gryff

Assuming she has a liferent ( which we don't actually know, but her occupation strongly suggests it ) then it was definitely a GROB, and the value of the house will be in her estate for IHT purposes. I'm not convinced that implies that NRNB is therefore available. Lose-Lose is a thing.

I'll perhaps retract the definite "NO" about NRNB, because this stuff is hard. I said it on the basis that it's a discretionary trust, and on the view that, therefore, no descendant would become absolutely entitled on the mother's death. I am willing to be corrected, and the terms of the trust may help the family.

I'd still operate on the basis that NRNB is not available, until a STEP lawyer who has seen the trust deed assured me different.