Inheritance tax and discretionary nil-rate trusts

ifr

Hello all,

I'm looking for some advice. I am going to consult with a solicitor but I'd like to an idea of how the land lies before that consultation.

Dad died 2008. His will contained a discretionary nil-rate trust, which made my mum and the three children trustees.

We effectively regarded everything in the estate as mum's, and took nothing from it.

Later that year, my mum started correspondence with a solicitor to wind up the trust (on his advice, to move to the simpler transfer of dad's unused nil-rate band). However, she became critically ill and remained so until the end of last year, when she died. I do have written evidence (letter to solicitor) of her intent to wind up the trust, but doubt that will count for anything.

The trust was never wound up. Her will is a mirror of dad's. The estate is likely to be about 40k over the 325k threshold. I am now unclear whether:

- we're stuffed, and because the trust wasn't wound up we now have to pay IHT on anything over the 325k

- the trust actually still provides the protection it was intended to, and so we won't have to pay any IHT (in which case, why did the original solicitor advise Mum that she had to wind it up).

All a bit confusing for me, and I would really appreciate any insight. Thanks.

getmore4less

Why were you not involved with the solicitor making the suggestions, as trustees you would need to have agreed to any changes.


What was the size of the trust at the time it was set up?

If less than the nil-rate band there will still be some left to transfer.

This might be enough to make the estate including the current value of the trust below the threshold

ifr

Thanks for the response. It was just an outline conversation between solicitor and mum, and am sure she would have come to us about it for approval but critical illness intervened.

Dad's will was written as putting his half of everything and anything in his sole name into the Trust up to the level of the nil-rate at the time. That would have totalled about 220k, so if that was 'used up' in setting up the trust, presumably the remainder of that nil-rate would be available to us now, in addition to Mum's.

getmore4less

If the trust was setup with £220k

2008(pre/post april) the nill rate band was £300k/£312k

Which means there is a proportion of the current £325k allowance available

so 325 * ( 80/300 or 92/312) (This is from memory, the IHT forms have the correct way to do this)

Should be more than enough to cover £40k

this will need a full IHT400 return

If there is a house involved the valuation there could be flexable.

ifr

Thank you, that's really helpful.