Nil Rate Band Discretionary Trust

SeniorSam

I had an interesting question recently and was not sure of the answer. It concerns a married couple and their Discretionary Trust Nil Rate Band Wills, where on the first death to hold up to the nil rate band allowance of that person. A fairly common Will, but I was concerned about one part.

Both husband and wife held their own assets of around £150,000 and their tenants in common residence was valued at around £800,000. On first death, the Discretionary Trust is created, but if their nil rate band allowance were allocated to that Trust, could the Revenue construe that part of that sum (£175,000) was part of the residence ownership? Therefore, could this possibly affect the joint Residential Allowance when the spouse died?

I have not come across this question before, but would be interested in anyone who has, or your opinion.

Keep_pedalling

Those sort of trusts became obsolete with the transferable nil rate band, and are now a very bad thing for home owning married couples with children. They both need new wills, and should not delay getting them done.

The TNRB came in in 2007 so their wills are going to be at least 12 years old so well overdue for review anyway.

With a joint estate of £900k they don’t currently have to worry about IHT.

SeniorSam

Thank you but that does not answer the question
................"Therefore, could this possibly affect the joint Residential Allowance when the spouse died?"

Keep_pedalling

SeniorSam wrote: »

Thank you but that does not answer the question
................"Therefore, could this possibly affect the joint Residential Allowance when the spouse died?"

Yes, which is why these trusts are a dangerous thing for them to have in their wills.

Yorkshireman99

Keep_pedalling wrote: »

Yes, which is why these trusts are a dangerous thing for them to have in their wills.

Urgent advice from a solicitor who is a STEP member is essential.

getmore4less

This looks like a case of the RNRB not being used if no qualifying property passes to qualifying direct decendants.

transfers to the spouse to use on their qualifying residence and qualifying decendants when they die.

As long as they have a beneficial interest in property that can use double RNRB allowance then nothing is lost.

As said these sort of trusts are less useful with the transferable NRB and life interest trust allow the spouse to have a qualifying interest while still protecting asset grabs.

SeniorSam

Thank you.
I did think that it was a problem, but needed to get the right answer confirmed. Many thanks to all.

SeniorSam

Getmore4less, You may have missed the point that the property would pass to the spouse and then on to children (although I did not mention that).

Both have an interest to pass on as tenants in common, but if one were to leave a nil rate band allowance in Trust that was ABOVE the value of their 'other' assets, that could attract attention to deplete the RNRB allowance of the first to die.

With both NRB and RNRB, they could have £500,000 each from 2020. With Wills as they are at present, that allowance would be reduced. I had already suggested they seek advice from a STEP solicitor.

getmore4less

Why would the RNRB get depleted if that part of the house goes into the discretionary NRB trust.

It would just not get used as there is no qualifying interest getting passed to decendants.

That would leave the full RNRB to transfer to the spouse and be used with their qualifying interest.

getmore4less

How do create a nil rate band trust in excess of the assets getting put into it.

If the house is passing to the wife and there is only 150 of other assets then the limit for the trust will be £150k the rets of the NRB will be transferable.

Keep_pedalling

As the NRBDT provides absolutely no benefit for this estate any longer, why would you even consider leaving things as they are? Even if it does not effect the transferable RNRB (and the following link suggests it might do exactly that) it adds complexity for your executors that is simply not required.

https://www.truebearing.co.uk/residence-nil-rate-band-affect-trusts/