Using the Nil Rate Band of a Surviving Partner on the Estate of a Predeceased Partner

TheOtter99

I've tried to keep this post as short, if I've missed any relevant detail then I am happy to try to fill in what's missing.

My Aunt and Uncle have both died recently with my Aunt predeceasing my Uncle by about two weeks. My Aunt had no children and my Uncle had two children from a previous marriage. As they married later in life, their financial affairs were kept reasonably separate. My Aunt has left the residual of her estate mainly to my sister and myself. My Uncle has left his estate to his two children.

She has considerable assets in her estate and will easily exhaust her nil rate band so inheritance tax will be payable. As far as I'm aware, my Uncle would have left very little and a large proportion of his nil rate band will not have been used.

As she died first, I understand it's not possible to claim any of my Uncle's unused nil rate band. Her previous will set up a discretionary nil rate band trust, and another discretionary trust that included her remaining assets in excess of the nil rate band. A lifetime interest in the income of those trusts was granted to my Uncle with the assets passing to my sister and myself on his death. With this structure, I believe it was possible to make use of both nil rate bands.

Her actual will makes no use of trusts.

I have read it is possible to set up retrospective nil rate band trusts after death. It is possible to do this in this case as my Uncle has now also died? This would be an attempt to replicate something similar to my aunt's previous will and reduce the amount of inheritance tax owed on her estate.

The underlying question is whether there is a way to make use of any unused nil rate band from a surviving partner on their death that can be applied to the estate of the predeceased partner?

I'm really just seeking opinion if this is at all possible. If it is, I will need to take professional advice.

Thanks

Keep_pedalling

Nil rate band discretionary trusts became redundant for most people once the transferable NRB was introduced so are of no benefit in this situation.

Anything passing to her husband is covered by spousal exemption, but beyond that you only have her £325k NRB available so the rest will be subject to IHT unless she was previously widowed from a previous marriage. 

If she did leave anything to her husband did her will have a survivorship clause for this bequest?

TheOtter99

Her will leaves nothing to her husband and there are no survivorship clauses.

If he had died first and she second then I think we would have been able to claim on any unused nil rate band. I agree that for most people transferable NRB works fine, as typically the first partner to die leaves everything to the surviving partner who then leaves it to their children.

I'm thinking that a nil rate band trust might have been useful here as the beneficiaries aren't the offspring of both partners.

Keep_pedalling

TheOtter99 said:

Her will leaves nothing to her husband and there are no survivorship clauses.

If he had died first and she second then I think we would have been able to claim on any unused nil rate band. I agree that for most people transferable NRB works fine, as typically the first partner to die leaves everything to the surviving partner who then leaves it to their children.

I'm thinking that a nil rate band trust might have been useful here as the beneficiaries aren't the offspring of both partners.

I can’t see how it would have helped. The trust would simply have used up her NRB in the same way as a direct bequest would do.

TheOtter99

I think I need to work out how her previous will worked. If the NRB trust just consumed her NRB as a direct bequest would, then why did they go to all the effort of setting up the trusts?

RAS

When was her will written?

TheOtter99

Her last will was written in 2018. There's no use of trusts in that will and nothing was left to her husband.

Her previous will was written in 2005.

That will specifically mentions leaving to her trustees, a Nil Rate Fund which while her husband is still alive, accumulates income, with that  income is payable to the beneficiaries, which includes her husband, and is added to the Trust Fund. The Trust Fund is the remainder of her estate.

The income from the Trust Fund is payable to her husband during his life, accumulates the income from the Trust Fund and is payable to the beneficiaries.

Her husband's will is very similar except income is payable to my Aunt for the duration of her life. I thought by creating the trusts that both nil rate bands would be available on the second death.

I've found quite a few articles on how unmarried couples can save IHT which look like they have a lot similarities which I'm working through.

mattojgb

Transferable NRB was introduced in 2007/8. NRB trusts were common in wills before that date.