Existing nil-rate band loan trust

sroebuck

Hi
My father died in July 1996 having a nil-rate band discretionary loan trust will, mirrored with my mother’s will. Their house was in his sole name and valued at £120,000 but the executor’s adviser (my father’s accountant) suggested that my mother claim 50% of it using a form PA5. His other assets were valued at £75,000. Thus his estate was valued at £135,000 (not including my mother’s claimed half of the house at £60,000). The NRB was £200,000 at the time.

The formal loan agreement lending the full trust assets to my mother, together with the setting up/registering of the trust with HMRC was not done until March 2000. The trustees, my mother & brother (I was not included as I had not been involved in the probate) meet each year and agree that the loan & interest (RPI) does not need to be repaid and that it is revalued in line with RPI. This is minuted. My mother never got around to re-registering the house, but has since sold the house and bought another on in her sole name.

We are unsure what, if anything else we should do, especially in the light of the changes to IHT for couples. I understand that it is too late to cancel the trust to claim my father’s full nil rate band as at the 2nd death.

Presumably, when my mother dies, the loan including interest at RPI is repaid to the trust. Am I right in thinking that my father has only used 135/200 of his NRB leaving 65/200 of the NRB (as at the date of my mother’s death, some way off we hope!) to offset any of her liability?

We are also unsure who it is better to consult, if we need professional advice: an accountant, an IFA or a solicitor. There appear to be both claiming to specialise in wills trusts in our area (Epsom, Surrey). It might be that we don’t need advice if there is nothing else that needs doing!
Thanks in anticipation.
Steve R

localhero

Your understanding is sound.

Who to turn to for advice? Since this is a legal matter, the best option would be a solicitor - provided they have the necessary expertise.

Members of STEP are qualified in dealing with trusts and estate planning and so I would make them your starting point.

Well done so far.

SeniorSam

sroebuck wrote: »

Hi
My father died in July 1996 having a nil-rate band discretionary loan trust will, mirrored with my mother’s will. Their house was in his sole name and valued at £120,000 but the executor’s adviser (my father’s accountant) suggested that my mother claim 50% of it using a form PA5. His other assets were valued at £75,000. Thus his estate was valued at £135,000 (not including my mother’s claimed half of the house at £60,000). The NRB was £200,000 at the time.

The formal loan agreement lending the full trust assets to my mother, together with the setting up/registering of the trust with HMRC was not done until March 2000. The trustees, my mother & brother (I was not included as I had not been involved in the probate) meet each year and agree that the loan & interest (RPI) does not need to be repaid and that it is revalued in line with RPI. This is minuted. My mother never got around to re-registering the house, but has since sold the house and bought another on in her sole name.

We are unsure what, if anything else we should do, especially in the light of the changes to IHT for couples. I understand that it is too late to cancel the trust to claim my father’s full nil rate band as at the 2nd death.

Presumably, when my mother dies, the loan including interest at RPI is repaid to the trust. Am I right in thinking that my father has only used 135/200 of his NRB leaving 65/200 of the NRB (as at the date of my mother’s death, some way off we hope!) to offset any of her liability?

We are also unsure who it is better to consult, if we need professional advice: an accountant, an IFA or a solicitor. There appear to be both claiming to specialise in wills trusts in our area (Epsom, Surrey). It might be that we don’t need advice if there is nothing else that needs doing!
Thanks in anticipation.
Steve R

........ On the full value of the estate - £135,000, with the NRB at 200,000, the used part of the allowance was 68%. If however the 50% claim of the house was arranged correctly and his estate value was only £75,000, that represents the use of only 38% of his nil rate band allowance.

When your mother dies, whatever the nil rate band allowance at that time, your father''s unused allowance ( on the same level as that of your mother) can be carried forward and is either 32% or 62% of that allowance.

The loan to the Discretionary Trust of your fathers assets (the IOU) is repayable from your mother's estate to reduce it's value as far as inheritance tax is concerned and was only a loan so that she could make use of it if required, but still protect that sum.

If interest is added to the Trust loan, then it will be taxed at 40%, so do not add interest unless a requirement.

Some financial advisers may specialise in inheritance tax whilst others only claim to, but a solicitor would be able to clarify the above points for you and an initial meeting may be without obligation or cost ..... you need to ask.

Dealing with Probate following the death of your mother is another matter to be dealt with by you or whoever the appointed executors are.

Hope this helps

Sam

sroebuck

Thanks very much, Senior Sam & Local Hero. Really helpful, as ever.
Regards
Steve R