NRB for discretionary trust 14 June 2022 at 7:32PM in Deaths, funerals & probate 7 replies 208 views

AprilKid

Hello everyone,
To cut a long story short, a family member has part inherited a property from a relative. The other part has been left in a discretionary trust for her too. For deeply sentimental reasons she's keeping the property. 

Will the deceased's nrb apply in full to the discretionary trust for future trust taxation calculations? Or will it be half? It's the only trust the deceased set up.  

Thank you

Keep_pedalling

The NRB applies to the estate before anything is distributed whether to a trust or person, if the estate exceeds the deceased persons exemptions then IHT will need to be paid out of the assets which might mean the house having to be sold to pay it.

This is a very strange bequest, why half outright gift and half in a discretionary trust? DTs can be arduous to manage and are subject some pretty hefty taxation. If there is no practical purpose for the trust then look to wind it up so the beneficiary receives the property goes to her outright. 

AprilKid

Thanks K_p.
Yes I, or rather she, understands that the NRB applies to the whole estate. There's enough savings to pay bills and the IHT, so the property is safe.
As I understand it, if she'd received the whole house it would have been in excess of her own future NRB allowance.
And if it'd all been put in trust, it would have exceeded the deceased's NRB for a trust. So every 10 years there would have been a charge due. 
This way it seems she's protected on both accounts.

April

Keep_pedalling

I don’t see how this protects her, she will be dead by the time any IHT has to be paid. Also as the sole beneficiary of a discretionary trust I believe it will still form part of her estate for IHT purposes. 

This seems to be a combination of half cocked inheritance planning and hanging on to a house for sentimental reasons, which is rarely a good idea. What is her marital status and does she have children?

AprilKid

As one of the trustees, the trust deed gives her power to add beneficiaries including her children. So I imagine when she passed away, the trust half will not count towards her estate. 

Keep_pedalling

Assuming she will be living in this home for the rest of her life I can’t see anyway you can avoid it being included her estate. Was professional advice taken regarding the trust? If not or it was a considerable time ago then you need it now.

Marcon

AprilKid said:

As one of the trustees, the trust deed gives her power to add beneficiaries including her children. So I imagine when she passed away, the trust half will not count towards her estate. 

There's rather a lot of speculation going on here. Maybe the best idea is for the lady who has inherited the property - or half of it! - to take all the documentation to a solicitor and get an accurate answer based on the facts, which nobody here has because they've not seen the will/terms of the trust. 

BootcamperHF

Keep_pedalling said:

I don’t see how this protects her, she will be dead by the time any IHT has to be paid. Also as the sole beneficiary of a discretionary trust I believe it will still form part of her estate for IHT purposes. 

This seems to be a combination of half cocked inheritance planning and hanging on to a house for sentimental reasons, which is rarely a good idea. What is her marital status and does she have children?

A discretionary trust cannot have a sole beneficiary (otherwise it cannot be discretionary) nor does it form part of an estate of a deceased individual.  It suffers it's own IHT charge during the lifetime of the trust.  If assets are appointed out there may be an exit charge and the assets appointed then form part of the discretionary beneficiaries estate.  Legal advice should certainly be taken in this case.