Removing Trust Restrictions for Property Sales
Trustees often protect Trust beneficiaries by placing a restriction on property when advancing capital by loan. Removing trust restrictions for property sales is a process that must be undertaken properly and correctly.
When does this arise?
This type of situation usually applies to a case where there is a trust such as a Discretionary Trust or a Life Interest Trust (Interest in Possession Trust).
The general circumstances are such that the assets are transferred from the Trust to a named beneficiary (or beneficiaries) who themselves manage the assets – the trust itself being largely dormant save for a restriction notice protecting a Trust interest in a loan advancement or life interest to such beneficiary.
When a sale of a property takes place, the process may require consent to the sought to the sale from the trustees of the Trust and that process can include a full removal of the restriction notice or indeed a removal and replacement of the notice to a new property purchased out of the proceeds of sale.
The work required usually includes three processes:
- Communication: holding a meeting or discussion with co-trustees;
- Evaluation: undertaking a due process along the lines as set out below and;
- Decision-Making: agreeing a course of action
Communication
Initially this can be by email or phone but then usually followed up with a meeting with the Trustees (or zoom/video conference call) and then subsequently arranging for documentation to be emailed for approval before executing consents and further documents.
Evaluation
- Value of the Trust Fund being protected by the restriction
- Current Legal Owner(s) of the property
- Names of beneficiaries who are currently protected by the restriction
- Reason for the request for consent or removal; sale or re-mortgage?
- Is there a related purchase using sale proceeds? Can a new Eq Charge be created on the new property?
- What is the value of the new property? Is the value commensurate with the existing property?
- What are the wishes and instructions of other co-Trustees?
- Do the remainder beneficiaries know and consent to the removal or consent?
- What are the instructions contained in the Trust; particularly the Memorandum of Wishes or Supplemental Trust Deeds?
- Is there any other existing security for the loan or value of the Trust Fund? (this could be a restriction on another property for example)
- If not, are there any other assets on which security or restriction notices could be placed?
Decision
Options Include:
- Consenting to a sale of property
- Consenting to a mortgage or re-mortgage.
- Retaining the existing restriction in favour of the Trust on the existing HMLR title.
- Consenting to removal of the restriction on condition that a new Equitable Charge restriction notice is placed on the new property purchased from the proceeds or other suitable property.
- Removal and agreement that no further Equitable Charge or restriction shall be entered and/or instead that a Deed of Promissory Note executed to replace the existing restriction and Equitable Charge.
For our ‘Removing Trust Restrictions for Property Sales’ leaflet and information please see our link below to our Guide on this area.
