Reassessment - Part 3

The Trust members met together on 4th January to discuss the things we had learned from Amanda Freeman of Myerson Solicitors. Margaret Mytton and I had had a second meeting with Amanda on the 16th December to clarify things still further, and now we needed to talk things over with Chris Pearson. 

Since our earlier meeting (see Reassessment - Part 2 below) we had heard from Forbes Dawson, a tax specialist called in by Myerson, and their advice was to close the Trust and set up a Limited Company instead, in order to better manage the affairs of the Dave Pearson Estate. 

In fact, a one-off opportunity exists to do this before the 10th anniversary of the Trust. After that the option to undo Trust status no longer exists in law, and the Estate would continue - every 10 years - to have to undergo Estate Duty reassessment. It would mean that, as a result of all the work that I and others have done since Dave's death, there would be a considerable increase in value of the Estate since his death. This would be taxed, and a similar re-assessment - and the accompanying taxation - would have to be done very 10 years. 

But by withdrawing the Trust structure, there will be no need for such a reassessment; instead tax will simply be paid on all sales as with any other business, and this can be offset against our expenses (which it can't for a Trust). Further, as a limited company we can pay agents, or directors, to help us sell Dave's work. 

So Chris, Margaret and I have agreed to close the Dave Pearson Trust and to establish a new limited company. This will be done over the next 12 months. Chris will be the sole Shareholder, so the terms of Dave's will - that the Estate is left to his son - will continue to be met.

The limited company will need to compensate Directors and Agents in a way that the Trust did not, as Trustees must do any work for free. So increasing sales of Dave's work will become even more important. Not only to keep the studio afloat, the work being catalogued and archived, but now the need to pay some level of fees to anyone helping in this process. 

Fortunately we're continuing to make links in this respect, and Ed Perry of the Colourfield Gallery in Poynton visited over the holiday period and has taken away several works by Dave for sale at the Gallery and online (click here to see the Colourfield Gallery page). Ed was very enthusiastic about the link between his gallery and the Trust, and took away some especially strong pieces of work (see picture, above, for a taster).

Reassessment - Part 2

This morning the three members of the Dave Pearson Trust - Margaret Mytton, Chris Pearson, and I, went to meet Amanda Freeman of Myerson Solicitors in Altrincham. Amanda has particular experience in wills and inheritance tax planning, and knowledge of estates and trusts. We chose Myerson since they are a law practice recommended by Artlaw.  

Amanda quickly made us feel relaxed, despite us being beginners in understanding the law in these areas. All three of us would admit to being naive about this complex area of law, even though we have been acting as trustees for over 7 years. She listened to our concerns, and asked us a number of questions about the Trust. We had with us a copy of the Will, the Trust documents, and an account of the Trust's financial dealings since 2008 (as well as our passports to show that we were who we claimed to be). 

She said that, well, we had come at exactly the right time - as there are still over two years left before (because of the 10 year rule) we need to be reassessed for Estate Duty. She said that this will give us adequate time to decide what course of action to take and then to go to the Inland Revenue to discuss the Trust's tax affairs. 

One thing I had never fully understood and which Amanda clarified for me, was the fact that the kind of Trust we are (apparently a 'Relevant Property Trust') can make over what is called a 'Holdover Election'. This can only be done within the first 10 years of a Trust existence. In effect, it would enable us, if we chose, to return the Estate back to Chris Pearson, who was the sole beneficiary of the Will as Dave's son. 

The advantage of this to the Trust would be that the Estate Duty issue would then cease to exist - although Capital Gains Tax would still need to be paid on any sales of the work. It would mean that Margaret and I would no longer be Trustees, and the Trust would be wound up. The downside is that it would place all the responsibility for the paintings and the tax back with Chris - and it was to avoid precisely this that was the main reason for establishing the Trust in the first place. 

Still, many things have changed over the last decade. For a start, we now know far more about exactly what artwork the Estate owns, and we also have more knowledge about the value of individual pieces of work than we had in 2009. This information would help Chris should we decide to wind up the Trust - and there's also no reason why we shouldn't continue to help Chris should he want us to, or equally he could employ others to give him that support.

But all of this is still a way away. All three Trustees will no doubt think over what we learned from Amanda today, and she is suggesting that we have another meeting soon with one of her colleagues who is an expert on the art market. After that, it will be time to make a  decision on what course of action we want to take and then make our submission to the Inland Revenue.