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Trusts, the family home and reservation of benefit | Trust News

Trusts, the family home and reservation of benefit

| Published on July 26, 2019

The current case of Rogge v Rogge (Rogge v Rogge, 2019 EWHC 1949 Ch) illustrates the need to obtain the correct professional advice and think carefully before making transfers into trust, especially if the asset being transferred is the family home.

The facts

Mr Rogge is a very wealthy businessman. He and his wife have four children, one of whom was severely injured in a sporting accident. On liaising with their professional advisors it was recommended to them that they set up a trust primarily for the benefit of their disabled son.

Mr and Mrs Rogge wanted to move to the country on their retirement and decided to purchase a property to be used for their retirement, for their children and future grandchildren to visit and with an area specifically for their disabled son.

They decided to use the trust to purchase the property. Together, they transferred nearly £15 million pounds into the trust to facilitate the purchase of the property and to spend on improving it.

The trust created was a disabled persons trust, a special type of trust which provides certain tax benefits. Various issues arose from the transaction but the issue highlighted below relates to any lifetime gift, whether into a trust or whether absolutely to an individual.

Mr and Mrs Rogge were not accurately aware of the gift with reservation of benefit (GROB) rules that relate to Inheritance Tax. These rules essentially say that if you make a gift and still retain a benefit from the gifted asset (no matter how small that benefit) then the value of that gift will still be included in your estate upon your death.

If the gift relates to property that you intend to live in then, in order to not fall foul of the GROB rules, you will need to pay a full market rent to the trustees of the trust (or to the individual to whom you have gifted the property to).

In Mr and Mrs Rogge’s case this resulted in an annual rent of over £100,000. In addition, as this rent would be paid to the trustees, the receipt of that rent would be taxed for income tax purposes at 45%.

The case

Mr and Mrs Rogge applied to the Court to have the transaction set aside for mistake, a principle primarily set out in the case of Pitt v Holt. It appears that they are likely to be successful in setting aside the majority of the gifts made into the trust but not all.

Lessons to learn

If the Court agree to set aside the majority of the gifts then tax ramifications of this transaction will be largely nullified, but the stress and strain of having to un-pick the last 8 years since the trust was established together with the costs and time of making such a complex application to the Court will have had a profound effect.

When you are considering estate planning it is essential that you ensure that the person advising you, whether that be a Solicitor, an accountant or a financial advisor, is appropriately qualified to provide that advice. Not to do so could create a large headache further down to road.

Adam Scott is a Partner in the private client department at Humphries Kirk. He is a member of the Society of Trust and Estate Practitioners (STEP) and specialises in providing estate planning and trust advice. To find out more about creating a trust, please contact Adam Scott on 01202 421111 or email a.scott@hklaw.eu.

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