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Importance of Up-to-Date Advice on Trusts from an Expert

View profile for Joanne Jones
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A Trust when set up to benefit a vulnerable loved one should be ‘watertight’ and clients quite rightly do not expect unseen consequences, however it is always advisable to consult a professional whose advice is up to date and relevant, as one recent case highlights.

The High Court came to the aid of a retired GP whose misguided attempt to ensure long-term security for her disabled children threatened her with unnecessary tax liabilities after the advice she received from a friend was out of date.

The GP owned a quarter share in a 999-year lease of a building worth £1.5 million.  It was where she had once practised and in her Will she wanted the asset split between her son and daughter.

She agreed that two of her former partners could manage the trust following her death as she had concerns that her children could not cope with it.

The 80-year-old GP took advice from a legally qualified childhood friend and placed her share of the property in a trust.  This gave her a rental income during her lifetime with the intention of making a smooth transfer to her children when she died. She was advised that her tax position would be unaffected by the trust.

The execution of the trust in fact had grave tax consequences – a capital gains tax liability of up to £50,000 and a potential increase in inheritance tax (IHT) on her death.  The friend’s advice that the creation of a trust would not amount to a disposal for the asset for tax purposes had been totally wrong and out of date.

After she launched proceedings, the Court accepted that she had made an error based on her friend's misguided advice.  The High Court decided that it would be unconscionable and unjust to leave the mistake uncorrected and so revoked the trust. This meant inheritance tax (IHT) would be chargeable as usual on the value of the asset when the GP died, but that she would be relieved of the other unforeseen tax consequences of the trust.

Although Trusts can be a really useful tool for planning ahead and protecting the financial future of your loved ones, they are complex and, as demonstrated by this case, taking full legal advice is key to ensure that your objectives are met and there are no nasty surprises later on,”  said Private Client Solicitor, Joanne Jones.

For full and up to date legal advice on Trusts, Wills and any Inheritance planning issues contact one of the team on 0161 785 3500 or email joanne.jones@pearsonlegal.co.uk

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.