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any one had any experience of being bought out of a trust, in this instance a property protection trust?
mrs sofaboy has 50% of her late dads house held in a property protection trust, with her step mother having a life interest in the property and owning the other 50%
out of the blue her solicitors have contacted mrs sofaboy to see if she would be interested in being bought out of the trust by encashing / selling her interest in the trust.
goes without saying that we need to find our own trust solicitor, however i'm not sure we what we need to find out from them / the pertinent questions to be asking at the start of the process, hence the query.
off the top of my head:
- tax implications - what tax liability would be due - IHT, CGT or something else
- reduction in value of of half share due to ongoing life interest - there solicitor is suggesting that 50% share would be reduced to reflect the ongoing life interest of the stepmother - is this normal? i assume some form of actuarial calculation would come into play?
- valuation of property to be established - is this value now or at estimated end of life of step mother
anything else we should be asking our solicitor (once we find one)?
TIA
I assume Stepmom and your wife aren't close if the first approach was via solicitor? In that case it seems unlikely that she is doing this as a way to help her stepdaughter see the money sooner! A cynic might suggest that if you were the occupier of a house like this and would like to move, you might prefer to try and buy our the trust cheap, then sell the house at real value.
Before spending money on your own legal advice - does Mrs SB want the money now? ie. would it be nice to have a chunk of cash today rather than at some unknown date in the future - you will be able to make a very rough estimate whether she is likely to be around for 5/10/20/30 years. Based on age, lifestyle, family history. Obviously any of us can die tomorrow, and equally some people seem to deft all the odds and live forever.
IF the answer is Mrs SB could enjoy a fair payout today then I would assume legal advice will answer the questions based on the specific details of the trust. I would avoid spending too much on the advice as it may be she's planning a cheeky offer!
the other things to consider are responsibility of upkeep and likelyhood of timelines. If the mrs is half responsible for paying for the house to be maintained, but can't live there or cash it in for the next 30 years, the asset isn't worth much. On the other hand, if the step mother has 5 years left to go, and there's no costs in keeping the house, I'd be looking at closer to half its value
what does the will actually say? A trust implies theres a beneficiary of that trust.
I own part of my parents house in trust after my dad died. So its half owned by my mum and 25% each by myself and my brother - in trust.
The purpose of the trust of for us to provide a home for my mum. So in practice the only thing we can do if we all sell the house, or if any of us sold our share in the house, is use that money to provide a home for my mum. We can't really 'cash out'. The will was written the way it was for a reason so the first thing I'd do is look at that.
You need to receive a RICS valuation and work from that position (50% less costs)
If its gone legal from day 1, i'd just take the money and get on with your life.
Imagine you are sat at home and someone knocks the door and offers you £10,000 for a garden ornament you had rescued from the tip. This is a sudden offer of money for something you were not thinking about selling 5 minutes earlier.
Why are they trying to buy you out, it is in their financial interest or some other motive?
What is their upside of the deal and does this mean you have a down side?
Start with normal deal question like above and then decide if you want to proceed with solicitors etc.
thanks for the replies so far
I assume Stepmom and your wife aren't close if the first approach was via solicitor?
correct, no love lost between them at all. Mrs SB wasn't event that close to her dad so the whole trust thing was a bit of a surprise when he died 6 years ago
Before spending money on your own legal advice - does Mrs SB want the money now?
yes, it would be very handy as means we could likely pay off our mortgage and put away a house deposit for the teenager when sh'e ready to move out
the other things to consider are responsibility of upkeep and likelyhood of timelines.
no responsibility for any of that for mrs SB. the terms of the trust stipulate that the stepmother does all of that and must keep the property in good sate of repair. time lines - who know but step mother is 71 and not the healthiest lifestyle - smokes, drinks etc
what does the will actually say? A trust implies theres a beneficiary of that trust.
the will stipulated the property being held in trust with mrs SB being the sole beneficiary of the half share of the property that was her dads when the property is sold either following SM moving or dying. SM she has a right to stay living there for the rest of her life and mrs SB couldn't force a sale. mrs SB share is also protected against being used as an asset to fund for care fee's and the like for SM
If its gone legal from day 1, i'd just take the money and get on with your life.
hopeful that's the plan. it's come a little out of the blue though and we have no idea what the step mothers motivation is for doing this now rather than following the initial probate. she doesn't have any kids and her estate would likely go to her brothers so not sure what the benefit is for her. i suspect she is looking for a 'good deal' though
Probably sm wants to move (,in which case she gets half). By buying the other half at less than half value she's ahead. If I have understood things correctly.
yes, it would be very handy as means we could likely pay off our mortgage and put away a house deposit for the teenager when sh'e ready to move out
OK so work out what number would make your lives better by fulfilling those aspirations - and you have a minimum number, if it doesn't meet that then you can walk away. If it does meet that then you can get advice on the "fairness" of any offer. Personally I'd reply saying "We are happy to consider any offer that you wish to make, provided that all survey, legal costs etc for both parties are met by your client even if the transaction does not proceed." You could rack up a hefty legal, surveyor, etc bill to arrive at a proposal that you don't like but where you've sunk costs just to reach that point. Depending on the relationship you could have a solicitor make that reply (for a few hundred pounds probably) or reply to the solicitor, or just pick up the phone.
Bear in mind that half of all 71 yr old females alive today are expect to live beyond 88 - even if her lifestyle is not great the time for your wife to realise the asset could be a long way off. You can probably find better data for smokers, local geography etc.
hopeful that's the plan. it's come a little out of the blue though and we have no idea what the step mothers motivation is for doing this now rather than following the initial probate. she doesn't have any kids and her estate would likely go to her brothers so not sure what the benefit is for her. i suspect she is looking for a 'good deal' though
Potentially lots of reasons:
- Equity release to have a better retirement, especially if she has nobody close to pass it on to.
- Any renovations she does (new kitchen, windows etc) increase property value but all come out her pocket.
- Realising she's getting older and wants a smaller single level home.
- New man on the scene.
- Spite to try and make sure your wife gets less!
Sounds like events including death and moving trigger a sale. It would be possible to structure a deal so Mrs gets some money now and a reduced share, which tapers to nothing after x years.
Anyhow, if a deal is of interest the advice of a valuation surveyor experienced in valuing properties in that area is needed. And a solicitor. One might be able to recommend the other. All looking a bit expensive, but unless you are sure of sm intentions, as others have noted taking a reduced lump sum now may leave you feeling you have been stitched up in a couple of years time.
NB I used to be a lawyer, but not that kind.
Sounds like a win-win TBH.
Get a proper valuation and maybe a few estate agent ones too (bearing in mind they can be optimistic), then do MiL a good but fair deal.
There is a formal actuarial calculation for this type of thing. Based around current value of the property, likely future value, life expectancy of the Life Tenant (she will likely need some sort of medical assessment) and to an extent the reasons for bringing the trust to a close.
You need to take some proper advice, and ensure that they are willing to pay the costs - the last actuarial assessment we had done in a similar circumstance was circa £3k. That was on top of the costs of advice, the conveyancing etc.
@NJA their solicitor mentioned something similar in relation to calculating the vale of the stepmothers life interest in the property. If I’ve understood it correctly this would then be deducted from the value of mrs SB half share. I don’t understand why though, why would the value of the other parties life interest impact the value of mrs sb share? The other party isnt loosing anything as they end up being the sole owner of the house? can you shed any light as it sounds like you are familiar with the process
As the stepmum has already engaged a lawyer why not just reply that you would consider selling the interest depending on the price offered. Get their starting point before taking any further steps and laying out any cash. The ball is in their court.
If they come back with a silly offer you can just decline and let the clock keep ticking. After all, in the meantime you have an appreciating asset without any outgoings to maintain it.
If they make an offer you might consider then get advice as to any tax/capital gains etc and up to date valuation.
IANAE but I *think* you may be liable for CGT- not on the value itself but on the increase in value since the house went into Trust (her Dad's death)
I say this because my Dad's doing equity release, and his house was in trust - when Mum died in 11/23 her half share became 25% each for me and my sister. We then had to agree to advance the trust into ownership and then my sister and I gifted our shares back to him MortCo won't do ER on a house that has other interests in it - other owners, o/s mortgage, etc. As the amount of house increase was minimal between us being 25% owners and giving it away again it wasn't a consideration, but you need to check that and if so, ensure it's factored in to the calc.
FWIW We've also created an IHT liability for each of our estates as the value is considered a gift under the 7y rule - and it's not exempt as it's not our residence. I've told the wife and kids they have to look after me carefully or get their cheque books out.
Not an expert
Sorry i can’t write below the line
There are a few ways of looking at this. But this is why i think the law will say MrsSB will get less than 50% for her share
MrsSB owns has a 50% of a house at some unspecified point in the future. That’s worth less than 50% of a house today. If i said would you rather have £100,000 today or £180,000 in 10 years you’d sit down with an accountant and do the sums. This is similar with the variables of how long SM lives. But that will be just a number thats her likely life expectancy.
Is that fair? Well it’s not really a 50% share at the moment is it. SM currently has free use of an assesset for life, of huge value. Buying out MrsSB stops it being free so is a cost to her.
If the house was sold today and the value split 50:50 MrsSB gets half her inheritance 17 yrs early, that’s a massive financial gain. SM gets half the value of the house but now needs to rent some where or borrow to live in house of the value safe use to have for free.
I don’t understand why though, why would the value of the other parties life interest impact the value of mrs sb share?
My guess is she's planning to sell and hopes to buy out for significantly less than half the value of the house that would otherwise be due. Of course if your refusal to play ball results in her not selling for another 20 years, then you may consider that a worse outcome than cashing out at a discount.
If you cash out at 50% of true value and she sells next month you may be kicking yourself for a while. Likewise if you refuse the offer and she stays there for ever (though in that case you would only have a hypothetical alternative outcome to be annoyed by, rather than the actual hard cash in her hand in the case where she sells).
@sofaboy73 The life interest has a value because it is preventing your wife from realising her 50% share. So there is a price to be paid for your wife to get an advance on the capital. The size of that price is really dependent on how long the step mum is likely to live.
This is an example - not an actuarial calculation, so should not be relied upon.
A quick calculation based around the Nationwide house prices index suggests that if the step mum has 7 years left to live your wife could expect to suffer a 35% discount on her share - meaning she could expect 32.5% of the value of the property. Any offer above that might be worth considering, any offer below that would probably need to be rejected.
thanks all for the input above. we have now found a solicitor who provided initial advice and we have responded to 3rd party. now we sit and wait!
Its all irrelevant until you find out the basis of her offer. If its a figure you are happy with then does it really matter what percentage of its perceived value it is. Same with people saying MrsSB's 50% is worth less because of the live in Step Mother. No one knows step mothers motivation and she may be desperate to have zero ties to her Step Daughter that totally override any financial percentage.
Find out the basis of their offer, the amount and how much you feel it should be. If its close then discuss it through your solicitors. If its a million miles away, remind her that you have another generation to provide for and they will be here long after step mother has passed so there is no real huge hurry and you will wait it out 😉