Something called a nil rate fund - what to do?

simonineaston

Hi folks, you may be able to suggest my next steps! I'm executing my parents' mirror wills, drawn up in 2007. They both refer to something called a "nil rate fund". The solicitor who drew them up, a sole practioner, now retired, told me that a nil rate fund would have been a useful tool back then, when unused nil rate band was not transferable. It could have helped with inheritance tax, apparently.
As my parents died in autumn 2015 and spring 2017 respectively, different iht rules apply, with unused nil rate band being tranferable. Probate has been granted for both wills - so far, so good!
One of my parents' banks I have written to has referred to the nil rate fund mentioned in the wills and has asked me what I am going to do about it. I replied that I have taken advice from said solicitor which was that the fund is no longer necessary. The bank guy disagrees, saying that the will describes a fund and so a fund has to be created - I can see his point, although no other bank has referred to it - the implication being that either it doesn't matter or else they haven't read the wills!.
What is a "nil rate fund", how does one create it - or as the retired solicitor suggests, is it now superfluous? If it is now pointless, how do I persuade the bank administrator that we can move forward without it?

maximumgardener

Think it may be "nil rate band" you refer to here??

google it.....its connected to IHT

simonineaston

Think it may be "nil rate band" you refer to here??

Thanks for suggesting I might be thinking about nil rate band, MG, but I'm clear about the concept of the nil rate band and the implications for iht under the circumstances of my parents' wills.
My question relates to a different idea and so to help, I've quoted exacty from the relevant section of my parents' will, which as mirror wills are identical in all but the relevant named parties.
from the wills: Section 4 - Definitions
clause 4.1.1 "The Nile Rate Sum" means the maximum amount of cash which I can give on the terms of the Nil Rate Fund...
There are other mentions of the phrase nil rate fund throughout the wills however, I don't think it'll help to quote them all.
Hope that's clearer, folks!

Crabapple

The nil rate fund is basically a trust of £325k (or the entire estate of less than that).

The fact it no longer has a tax advantage is immaterial, the trust still exists.

I'm mirror wills it's quite common for the trust to only be created on a first death so there may only be one to deal with but you do need to do something. Mostly these are discretionary trusts so the executors have to agree how that money will be distributed.

It's none of the banks business btw but you should go see a lawyer as you may well need to sort a trust deed appointing assets out to beneficiaries.

getmore4less

you need to look at the first will and see what that says.

although the need for a nil rate band trus/fund was eliminated sounds like the wills were not changed to reflect this.

What do the will say?
what assets were put into the trust?
who were the beneficiaries
what sort of trust
if there is a house how was that owned if tenants in common and not joint tenants, was there a life interest .

what sort of size are the 2 estates?

simonineaston

although the need for a nil rate band trus/fund was eliminated sounds like the wills were not changed to reflect this.

This is exactly the case. The estate of the first deceased amounted to just over £300k, passing wholely to the second, with the total estate of the second amounting to a little bit more, that is £330K. There's no house, it's all cash / stocks. I'm the sole beneficiary.
As for the fund (you use the word 'trust' - are they interchangeable?), there is no physical fund, as far as I can tell. The solicitor told me that the fund was created by the will on the event of the death of the first spouse, however, if it was "created" I don't know how or where or what it is! The "fund" seems very much like a theoretical concept and it's got me very puzzled!
Is it just a case of the word "fund" being used to represent the total realised assets available to pass on?

Crabapple

The 'fund' is the trust assets. The trust was created automatically on the death.

You say the estate of the first passed wholely to the second, but unless every last asset was in joint names this is not the case.

Any sole assets should have been transferred to the executors/trustees for them to hold under whatever terms are set out in the will. It sounds like you didn't administer the first estate at the time but you need to deal with it now. You also need to get advice on the tax position regarding any trust assets.

Yorkshireman99

You need urgent professional advice because it looks as if some taxes need paying and there are big penalties for late payment.

getmore4less

simonineaston wrote: »

This is exactly the case. The estate of the first deceased amounted to just over £300k, passing wholely to the second, with the total estate of the second amounting to a little bit more, that is £330K. There's no house, it's all cash / stocks. I'm the sole beneficiary.
As for the fund (you use the word 'trust' - are they interchangeable?), there is no physical fund, as far as I can tell. The solicitor told me that the fund was created by the will on the event of the death of the first spouse, however, if it was "created" I don't know how or where or what it is! The "fund" seems very much like a theoretical concept and it's got me very puzzled!
Is it just a case of the word "fund" being used to represent the total realised assets available to pass on?

What do the wills say?

you are giving conflicting information which suggest you don't really understand the will(s).

if there was a nil rate fund/trust then the assets did not pass to the second.

Trusts are virtual concept described by a document(or sometimes they just exist*), death automatically create a trust for the assets of the deceased until the are distributed, sometimes a will include terms that mean a trust persists for longer, also if there are beneficiaries un 188 trusts are created for them.

A very typical example is a life interest trust for a spouse, where they get the right to live in a property but the ultimate beneficiary are the kids.


* a trust is where an assets is held for the benefit of others, a very simple example is if I give you £10 to go the shops to buy some stuff and bring them back along with the change, that creates a trust, with you as the trustee, once you give me the goods and the change the trust.

The £10 is not your so if you got run over by a bus the £10 does not form part of your estate.

There is a concept of legal ownership and beneficial ownership where someone may legally hold the asset on behalf of someone else.
eg. If the shares are in a nominee account will be held in a trust,


it would help for people to comment further if you posted the will just remove the identifying info like names, the other option will be to get some professional help to untangle the situation and understand the wills.


Does the £330k including the initial £300k or are we looking at £300k + £330k?

A couple of other details may change things as the residential nil rate band may be relevant

When did the second die?
if after April 6th this year
Was there ever a house?
if there was when was it disposed of?

securityguy

As I understand it, the unpleasant legacy of the setting up of these funds is that if they (the funds) are written into the will, they (the funds) are the beneficiary. So the obvious way to remove them from the equation, with a deed of variation, is complicated by the fact that the beneficiary who is giving up their interest, and therefore has to consent to the DoV, is the trust, not the eventual beneficiary of the trust. The trust may no longer be useful for reducing IHT, but simply transferring the assets into the trust and then immediately dissolving the trust may attract other costs and taxes, depending on the nature of the trust and the nature of the assets.

The problem with setting up a complex will to avoid IHT in tax year X is that if the rules change for tax year X+1, not only may the complex will be a waste of time and money, it may be actively harmful to the beneficiaries. The more complex the will, the more important it is to keep it up to date.

As I have said before, I have several sets of relatives whose estates will almost certainly attract IHT and my general view (shared by the other beneficiaries and crucially by all the executors) is "just pay it, then". Because most of the avoidance schemes are untested in the face of actual probate, complex to administer and most importantly potentially very complex to unwind. We have advised on and helped with the dismantling of trusts that were sold to these relatives, for precisely this reason.

Crabapple

No, the fund is the assets. The beneficiaries (or potential beneficiaries as this is likely a discretionary trust) will be specified in the will.

These types of Will were fairly common pre the transferable nil rate band where married couples had the unfair situation of two people building up assets over a lifetime, which if left to the surviving spouse would then only have one IHT allowance available.

The discretionary trust of the nil rate band meant the IHT allowance was preserved but the spouse could benefit.

The reason this can't be wound up by deed of variation is there are only classes of potential beneficiaries, not named people who could disclaim a specified interest. However the trustees can appoint out the assets and wind up the trust now.

IHT planning by way of will is pretty impossible now. Maybe getting the 36% rate by charity gifting.

There are some perfectly legitimate and simple things that can be done via a good IFA where tax planning is needed.