TRSM23020 - Types of trust that need to be registered: contents: excluded express trusts: contents: estates and trusts arising during the administration of someone’s estate
Background
When considering the administration of an estate, the person administrating the estate should consider:
a) has a trust been created?
b) Is the trust registrable on the Trust Registration Service (TRS)? Or is it excluded (from registration)?
c) If a trust is registrable, when should it be registered?
d) If the will doesn’t contain a registrable trust, is it a “complex estate”?
Has a trust been created?
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs) require most express trusts to register on the Trust Registration Service (TRS).
An express trust is a trust that is intentionally created and is usually documented in a trust deed or a will. Some trusts are created by statute or by court order; these are known as statutory trusts and are excluded from registration.
For more detail on the creation of will trusts please see TRSM23021.
Exclusions
Some types of trust are excluded from registration, either as a general rule or temporarily, allowing that person’s estate to be managed without creating additional administration requirements.
The exclusions are contained in Schedule 3A of the MLRs and for trusts arising from a death, they fall into two types of exclusion:
- a general exclusion from registration or;
- a temporary exclusion for a two- year period following the death of the person who has died (and whose estate is being administered).
General exclusions from registration
The following excluded trusts relate to estates management, for a full list see TRSM23000.
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 by Schedule 3A paragraph 16 to 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 stepparent. Parent can include a stepparent or a person who, immediately before their death, had parental responsibility for the minor.
A trust of this kind can 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 also excluded from registration as express trusts by 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 are therefore not registrable express trusts for the purposes of TRS, see TRSM21030.
Temporary exclusions
Trusts that are exempt from registration on TRS for a period of two years
Certain trusts are exempt from registration on TRS for two years following the death of certain beneficial owners. When the two-year period is complete, the trust may be required to be registered on TRS, unless certain criteria have been met (set out below).
These trusts are exempt from registration for two years:
- Trusts created by a will (exempt for two years from date of death of testator)
- Deeds of variation (exempt for two years from date of death of the person whose estate dispositions are being varied)
- Co-ownership property trusts (exempt for two years from date of death of a trustee)
- Trusts created by virtue of S34 of the Trusts Act (exempt for two years from date of death of a trustee).
Will trusts
An express trust created by will that holds only property from the estate of the deceased person is excluded from registration for a period of two years by (Sch3A (7) of the MLRs.
Trusts created by Deeds of Variation (as defined by paragraph 8A schedule 3A)
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: however, this trust is also excluded from registration for a period of two years following the death of the person whose estate dispositions are being varied.
If the trust arising from the Deed of Variation has not been closed (assets assigned) within the two year period, then the trust needs to be registered: 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 were 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 trust is exempt from registration until two years from the date of Caroline’s death.
Co-ownership trusts
Trusts of jointly held property (see TRSM23050) where the trustees and beneficiaries are the same persons are excluded from registration. These trusts often arise in the purchasing of land and property in England and Wales.
Co-ownership trusts are often bare trusts (see TRSM10030) and if so, are not required to register for taxable purposes either, because any UK tax liability is incurred by the beneficiaries rather than the trustees.
Co-ownership trusts are exempt from registration under paragraph 9 of schedule 3A, however, when one of the trustees dies, this exemption is no longer valid as the trustees and beneficiaries are no longer the same persons. However, under paragraph 9A of Schedule 3A, the trust does not become registrable until two-years from the date of the relevant trustee’s death.
Trusts of land with more than 4 owners (section 34 of the Trustees act 1925)
Where there are more than four owners of UK land, s34 of the Trustees Act requires four of the owners to form a trust on the behalf of the remaining owners. These types are not registrable trusts as they are trusts formed by statute.
When one of the trustees of a s34 trust dies, under paragraph 1A of Schedule 3A, the trustees have until two years after the death of the relevant trustee before any registrable trust arising from the administration of that trustee’s estate will be registrable.
Registration of Estates
Estates where the estate administration is finished within two years
If an estate has been dealt with and there are no ongoing trusts after two 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 two-year period. After the two-year period there is no longer a registrable trust and no registration is required.
Estates where the estate administration is finished within two years but there is an ongoing trust.
If an estate administration is completed within two years, but there is an ongoing express trust, this ongoing trust would need to register on TRS within 90 days of the two-year anniversary of the death of the settlor.
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 does not become registrable until 10 January 2024, two years after the date of death. The trustees will have 90 days to register from that anniversary.
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.
When to register a trust that is no longer exempt?
When a trust no longer qualifies as non-registrable or its exemption period has passed, if it remains a registrable trust, then it must register in line with the deadlines below.
More detail about registration deadlines can be found in TRSM40010.
Registration Deadlines
Non-taxable trusts
Since 6 October 2020, all registrable non-taxable express trusts must register within 90 days of becoming registrable.
Taxable trusts created on or after 6 April 2021
Registrable taxable trusts created on or after 6 April 2021 must register within 90 days.
Taxable trusts created before 6 April 2021
Registrable taxable trusts created before 6 April 2021 are required to register by 31 January (or 5 October in some cases) following the end of the tax year in which the trust had a liability to UK taxation. See TRSM40030 for further information.
Trusts that become liable to Capital Gains Tax from the sale of UK residential property
If a trust becomes liable to Capital Gains Tax following the sale of UK residential property, it must report and pay using the CGT on UK property account within 60 days of the sale taking place. The trust will need to register as a taxable trust prior to submitting the CGT on UK property account.
If a trust is liable for more than one tax and both deadlines could apply, the trust should register by the earlier of the two deadlines.
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. This trust is exempt from registration for two years from the date of Alice’s death (see co-ownership trusts below).
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.
Complex Estates
NOTE: 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.