Inheritance Tax and Trust

WorkingMummy_3

Hi, my dad had 2 trust which all his assets went into upon death - a family trust and an interest in possession trust with my mum as beneficiary. Now mum had died and I have been told she doesn’t get dads nil rate band of £325 because this was utilised on the trusts - is this right as now we have a large IHT - if dad had just left everything to mum we would have both nil rate band and no IHT to pay - so what was the point in the trusts?

DRS1

The transferable nil rate band has not been around forever - only since 2007.  What he did may have made perfect sense before then.

And writing wills is not just about IHT

Keep_pedalling

It is the family trust that would have used up his NRB, the IIP trust (also known as an immediate post death interest trust) would not have impacted the NRB as it is still subject to spousal exemption (assuming your parents were married).

Who are the beneficiaries of the family trust? When did your father die? What is the total value of your mother’s estate including the IIP trust?

poseidon1

If the family trust ( discretionary? ) still exists and has grown in value over the years to exceed the current nil rate band, then this is available to the family either entirely IHT free or at a much smaller IHT charge if the value exceeds the NRB.

Also don't overlook that the transferable Residence Nil Rate band is also available from your father. Depending on when your father died the RNRB from him would be a minimum  of £100k up to a maximum of £175k.

So worse case scenario your mum on death should have a minimum of £600k of NRBs  ( including father's RNRB at say £100k ) available to shelter her estate from tax, plus the  assets of the  family trust ( outside her estate) if this is still running.  The NRBs could increase by £75k if your father died after 6 April 2020.

Does the above analysis improve your view of the net assets to be inherited from your parents?