TRSM23020 - Types of trust that need to be registered: contents: excluded express trusts: contents: estates and trusts created on death

Trusts can often be created by will to hold property of the estate of a deceased person.

A trust created by will that holds only property from the estate of the deceased person is excluded from registration as an express trust for a period of two years from the date of death (Sch3A(7) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017).

Additionally, trusts set up for bereaved minors and age 18-to-25 trusts are excluded when the conditions below are met.

Whether a will trust needs to be registered is a separate consideration from whether the estate needs to register for tax purposes as a complex estate – see TRSM27030.

Estates that are fully administered within two years

Trusts created by will are excluded from registration for a period of two years to allow for dealing with an estate of someone who has died.

Therefore, if the estate has been dealt with and there are no ongoing trusts after 2 years, there is no requirement to register on TRS.

Example

Brenda dies on 8 September 2022. She leaves her estate to her executor Pedro to pay her debts, funeral expenses and to hold the balance on trust for her husband Gary absolutely.

Pedro deals with the estate and passes Gary’s full entitlement to him on 7 June 2023. Despite the will creating a trust, this does not carry on past the 2 year period. The exemption applies and no registration is required.

Note this is a separate consideration from whether the estate needs to register for tax purposes as a complex estate – see TRSM27030.

If an estate administration is completed within 2 years, but there is an ongoing express trust, this ongoing trust would need to register on TRS after two years from the date of death.

Example

Imre dies on 10 January 2022. His will appoints Lydia as his executor and leaves £500,000 on trust for his minor granddaughter Natalie.

Lydia deals with the estate which is fully administered by 1 July 2023. The trust of the legacy continues for a further five years until Natalie reaches the age of 18.

The trust of the legacy to Natalie commences from the date death. However, as a trust created by will this trust is not required to register until 10 January 2024, 2 years after the date of death.

Note this is a separate consideration from whether the estate needs to register for tax purposes as a complex estate – see TRSM27030.

If the estate administration carries on past 2 years, the guidance below explains when registration is required.

Estates in administration for more than two years

A trust is only required to register on TRS if it is an express trust, so if the will does not create a trust then no registration is required.

Example

Paula dies in England on 6 July 2022. Her will states that she appoints Ronald as her executor and directs him to pay all debts and funeral expenses and transfer her residuary estate to her daughter Leona.

The executor is not appointed as a trustee and no trust is declared over the estate. Any trust which arises is through operation of law because of Ronald’s duties as executor and so is not an express trust. No TRS registration is required regardless of the length of the administration period.

A will may create an express trust. If that trust is still in existence at two years from the date of death, it will need to be registered on TRS. A careful examination of the wording of the will is needed to understand what type of trust it creates and when it arises. Some examples are below.

1. A will may expressly state that the executor holds the estate upon trust as part of the administration of the estate, sometimes known as an administration trust. Example wording:

I give my estate to my executors on trust with power at their discretion to sell all or any part of parts of such property when they think fit. My executors shall pay my funeral and testamentary expenses my debts and any legacies given by this will out of such property or its proceeds of sale and hold the balance upon trust for such of Donald, Harold and Michaela as are living at my death and if more than one in equal shares.

Whilst there may be overlap between the duties of an executor and a trustee, there is clearly an express trust which covers the administration period and therefore starts from the date of death.So, if the administration of the estate continues after 2 years from date of death it must be registered on TRS as a will trust rather than as an estate. This trust would continue until all of the assets are paid outright to Donald, Harold and Michaela.

Note this is a separate consideration from whether the estate needs to register for tax purposes as a complex estate – see TRSM27030.

2. A will may leave a specific amount of money or an asset as a legacy to hold on trust, rather than as part of the residuary estate. This trust is also treated as coming into effect on death and therefore, if it continues after 2 years from date of death it must be registered on TRS.

3. Other trusts effected by will may commence at a later date, either during or before the end of the administration period. In such cases the trust is not required to register until assets have been transferred from the estate to the trust, and only from 2 years following the date of death. For example a will may appoint executors without creating a trust but confirm that the residuary estate is held on trust:

“I appoint Sophie as my executor to pay my debts, funeral expenses and to hold the balance upon trust for Gisele absolutely”

Here, the trust technically comes into existence when the administration period has ended and Sophie switches role from executor to trustee.It may be difficult to ascertain when this occurs. If the assets have not been transferred to Gisele within 2 years of death than the trust needs to be registered at that point if the administration period has ended or at the date when the administration period ends if later.

These rules may interact as various trusts can be created by one will.

Example

George dies in England on 4 August 2022. His will appoints Harry as his executor and leaves £500,000 on trust for his husband Jerry, during his lifetime, and then for his son Philip. George leaves the residuary estate on trust for Philip and his daughter Rosa. The estate administration takes longer than anticipated and the residuary estate is assented by the executors to themselves as trustees of the residuary fund on 16 December 2025.

1. The trust of the legacy commences from death and, if still in existence two years from the date of death, it will need to be registered on TRS.
2. The trust of the residuary estate begins when assets are appropriated (transferred) to the trustees or when the administration period ends. The trust of the residuary estate would therefore need to be registered after 16 December 2025 – until then the trust is not in existence as the trustees do not have any assets.
3. If the wording of the will had been different, so that the estate was given to the executors upon trust, the trust would need to be registered from 4 August 2024. However, provided the trustees are the same this is not a different trust from the residuary estate trust and only one registration is required.
4. Note this is a separate consideration from whether the estate needs to register for tax purposes as a complex estate – see TRSM27030.

Additions to the estate

A person’s estate includes the aggregate of all the property to which that person is beneficially entitled. See IHTM04031 for further information on the meaning of ‘beneficial entitlement’. If at any date a trust created by will accepts an addition of property from outside the estate, it will need to register.

Wills that interact with existing trusts or property trusts

A will may direct an addition to an existing trust; this would not be a trust created by will and so would not be within the exemption.

Example

Sunita sets up a trust on 1 May 2012 with a nominal £10. The trust lists her sister and her child as beneficiaries. Sunita also amends her will so that her share portfolio will transfer to the trust on her death.

Sunita dies on 1 February 2023 and the shares are transferred into the trust. The exclusion from registration does not apply as the trust was not created by the will. During Sunita’s lifetime the trust was excluded from registration as a historic pilot trust (see TRSM23090), but the trust is required to register from the point the assets are transferred into the trust following her death.

A trust on death may also interact with an existing trust.

Example

Alice and Bob own a property with a declaration of trust confirming they own as tenants in common. This trust is excluded from registration during Alice’s lifetime as an exempt co-ownership trust (see TRSM23050).

Alice dies and by the terms of her will leaves her share of the property on trust to Bob to occupy for the remainder of his life; and thereafter to her daughter Clara. Alice’s son David is appointed as executor and trustee of the will and also appointed as a second trustee of the property with Bob.

There are two trusts: 1) the new trust created by Alice’s will; and 2) the ongoing trust of the property.

1. The trust created by Alice’s will is excluded from the requirement to register for two years following Alice’s death. If the trust is still in existence two years after Alice’s death, the trust is required to register from that point.
2. The ongoing trust of the property is no longer an exempt co-ownership trust as the trustees and beneficiaries are not the same persons – see TRSM23050. Registration is required 90 days after Alice’s death.

If Clara were appointed as the second trustee of the property instead of David, then this would still be an exempt co-ownership trust as the trustees and beneficiaries would be the same persons, and therefore registration would not be required.

The co-ownership exemption is only relevant in relation to the co-ownership trust; the will trust needs to be registered. The co-ownership exemption would not be relevant where there was no co-ownership trust.

Example

Charles and Debra live together in a property owned outright by Charles. Charles dies and by the terms of his will creates a trust which gives Debra a life interest in the property, with the trustees having the power to sell and purchase a replacement property on the same terms. As a trust created by will, the trustees are not required to register the trust immediately on Charles’ death.

12 months following Charles’ death, the trustees sell the property and use the proceeds to purchase another property of similar value on the same terms, with Debra retaining her life interest.

As the trust fund still consists only of property from Charles’ estate (there has been a substitution but no additions), the trust is still excluded from registration. If the trust is still in existence two years after Charles’ death, the trust will be required to register from that point.

Trusts created by Deeds of Variation

If the beneficiaries under a will or intestacy create a Deed of Variation which includes a trust, the trust is created by the Deed of Variation and not by the will, so the exclusion from registration will not apply. See also TRSM32040 for information on who is the settlor of a trust created by a Deed of Variation.

Example

Caroline leaves her estate to Martha. Martha decides to enter into a Deed of Variation to give her entitlement to a trust for her sisters and their two children. Although certain tax provisions may apply as if this trust was included in the will (see IHTM35011), in general law a variation takes effect from the date of the deed. The settlor of this trust is Martha (see TRSM32040) and it comes into existence when the deed of variation is made (if assets are already available for the trust, or when assets are transferred to be held on the trusts if the estate has not yet been fully administered). This is not a trust created by will and therefore the 2 year exemption does not apply.

Trusts for bereaved minors

Trusts for bereaved minors that meet the conditions of section 71A of the Inheritance Tax Act 1984 are excluded from registration as express trusts (Sch3A(16) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017).

A bereaved minor is a person under 18 who has lost at least one parent or step-parent. Parent can include a step-parent or a person who, immediately before their death, had parental responsibility for the minor.

A trust of this kind can generally only be set up under:

• the will of a deceased parent,
• the Criminal Injuries Compensation Scheme,
• the Victims of Overseas Terrorism Compensation Scheme, or
• the intestacy rules – although note in these cases the trust would not be an express trust, see below.

For as long as the minor is living and under the age of 18:

• any of the settled property that is applied for the benefit of a beneficiary must be applied for the minor, and
• either they must be entitled to all the income arising from the settled property, or no such income may be applied for anyone else.

On attaining the age of 18, or before, the minor must become absolutely entitled to the settled property, any income arising from it, and any income that has arisen and been accumulated before that time.

See IHTM42815 for further information on trusts for bereaved minors.

Age 18-to-25 trusts: section 71D Inheritance Tax Act 1984

Age 18-to-25 trusts that meet the conditions of section 71D of the Inheritance Tax Act 1984 are excluded from registration as express trusts (Sch3A(16) of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017).

Age 18-to-25 trusts are similar to trusts for bereaved minors, but the beneficiary must receive absolute ownership of the settled property on or before their 25th birthday.

From 22 March 2006, these trusts can only be set up under:

• the will of a deceased parent, including where this is deemed to have happened, or
• the Criminal Injuries Compensation Scheme, or
• the Victims of Overseas Terrorism Compensation Scheme.

For as long as the beneficiary is alive and under the age of 25 they must be entitled to all of the income and, if any of the settled property is applied, it must be applied for the benefit of the beneficiary.

On attaining the age of 25, or before, the beneficiary must become absolutely entitled to the settled property, any income arising from it, and any income that has arisen and accumulated from the property.

See IHTM42816 for further information on age 18-to-25 trusts.

Intestacy and trust creation

In some cases in England and Wales, trusts may be created in the absence of a will under the intestacy rules. These will hold the assets on behalf of the individuals, often minors. These trusts are statutory trusts, imposed by legislation. Trusts for bereaved minors can be created on intestacy in this way.

As these were not intentionally created by the settlor, trusts created in these instances are not express trusts and therefore not registrable express trusts for the purposes of TRS, see TRSM21030.