IOU Powers with IHT Trusts?

Are they essential?

A new update to the Legacy Document System now includes IOU provisions as the last option in the Trustee Powers form. You can update your software by downloading the install program from the link below. Choose to Save the file and double-click to run:

http://legacydocuments.com/updates/WillsTemplateUD.exe

Are IOU Powers strictly necessary? We consider that this issue has arisen largely as a result of poorly drafted Wills that did not take proper account of the fact that assets within a discretionary trust cannot be otherwise allocated by contrary instructions elsewhere in the Will.

We always recommend that a Lifetime Interest in Property should NOT be included in the same Will with a Discretionary Trust for IHT mitigation if part of the family home may be needed to make up the exemption level amount. The reasons are obvious - the life interest is an absolute instruction to trustees - they have no discretion in the matter and the Revenue could and should deem this reservation of benefit. The IHT savings would be lost.

Why include the Life Interest anyway? The client has to trust his trustees (self evident?) to look after £275,000 of his estate. So surely they can be relied upon to make the right decisions on the use of the property especially if the surviving spouse is included as one of the trustees?

Some Will Writers have wrongly advised clients that both types of trust can be included. This can result in the IHT mitigation failing. The IOU provisions (advocated by the Society of Will Writers, etc.) are an attempt to overcome a problem that may not exist if our recommendation above had been followed.

How can it work? It allows a debt to be created with the surviving spouse buying out the deceased partner's share of the property - but with an IOU. So it is the IOU that goes into the trust fund rather than the value of part of the house itself. Reservation of benefit cannot apply to a debt. The trust is repaid from the sale of the home after the death of the second partner.

Future proof? It seems a bit tenuous even now ...

Use the IOU trustee powers with an IHT trust if:

• The client insists on including a lifetime interest in the family home as well
• You want an extra safeguard and to give maximum powers to trustees
• You have already written Wills including both Life Interest in Property and IHT trusts (in which case the IOU powers could be added using a codicil rather than a rewrite)

The IOU provisions currently provided in the Sure Will Writer and our software update are simply additional trustee powers bolted onto the end of the Will. If you believe there is a case to include these powers with all IHT trusts, the more sophisticated solution available with the Legacy Document System is to permanently extend the IHT trust itself from the Edit>Template Clauses menu .