Calculating IHT when two life interest trusts are involved

alkynance

I am executor to my mother's will and currently have valued her free estate.

She had a life interest in her husband's house which is now left to his descendants. I understand the total IHT bill will be split between her free estate and the trust proportionately and the NRB/RNRB will also be shared.

Now I discover she had a life interest in another will trust set up in 1944 with three other people and the value of her quarter share can eventually be distributed to her daughter.

The trust confirms that my mother is "deemed to own the capital value of the trust for Inheritance Tax (IHT) purposes, and this is added to her estate on death.

 This is called AGGREGATION (S49(1) IHTA 1984). The trust value is merely added to calculate the IHT due on their death. If there is any IHT due, this will be divided, pro rata by value, between the trust and the deceased beneficiary's personal estate. The trust will pay its own share of tax. Aggregation has the effect of reducing the nil rate band in the deceased beneficiary's estate because the aggregable trust value shares a proportion of it with the deceased's own estate"

I have two questions.

Is the capital value of the trust which is added to her estate the value of the whole trust or just her part of it (a quarter share)?

How is the calculation of how much IHT each party pays made when two trusts are involved? Is each trust's percentage of IHT calculated in relation to the total chargeable value of the estate (which includes the other trust) or just in relation to the 'personal estate' as mentioned in the above statement which I take to mean her free estate?

Thanks in advance

poseidon1

Having regard to your previous post in April, are we to understand the 1944 trust has been newly discovered and is in addition to the 2nd husband house trust in your prior post?  Starting an entirely new thread without reference to what has forgone is not especially helpful.

Be that as it may,  to answer your new questions:

1) Just the value of  her quarter share.

2) Each trust will pay its proportional share of the overall IHT bill. The 1944 trust will 'eat ' a further proportion of your mother's NRB, as does the House trust.

If you are not assisted by a solicitor ( which I sense to be the case), you may wish to consult one in navigating IHT compliance issues with the 1944 life interest trust trustees, as well as the House trustees.

As previously reiterated all entities (your mums estate and the 2 trusts) are  subject to the same 6 month deadline to pay IHT. 

You have an increasingly complex scenario here which most forumites will not have encountered.

Keep_pedalling

Personally I would take professional advice, trust law has changed a hell of a lot since 1944

alkynance

poseidon1 said:

Having regard to your previous post in April, are we to understand the 1944 trust has been newly discovered and is in addition to the 2nd husband house trust in your prior post?  Starting an entirely new thread without reference to what has forgone is not especially helpful.

Be that as it may,  to answer your new questions:

1) Just the value of  her quarter share.

2) Each trust will pay its proportional share of the overall IHT bill. The 1944 trust will 'eat ' a further proportion of your mother's NRB, as does the House trust.

If you are not assisted by a solicitor ( which I sense to be the case), you may wish to consult one in navigating IHT compliance issues with the 1944 life interest trust trustees, as well as the House trustees.

As previously reiterated all entities (your mums estate and the 2 trusts) are  subject to the same 6 month deadline to pay IHT. 

You have an increasingly complex scenario here which most forumites will not have encountered.

Yes, apologies. I thought this being a new scenario it better to start afresh. Thank you for your clarifications which are very helpful.
We had taken advice from a specialist solicitor when we were only aware of the life interest in the house and have undertaken all work so far ourselves as it has been relatively straightforward.
However, the discovery of the second trust does make things more complicated and of course further dilutes my mother's NRB.
The 1944 trust trustees have sent me a form asking for information about the estate including its total value, NRB available etc, the sort of questions HMRC require on the IHT400 form. Is this normal and permitted practice?

poseidon1

alkynance said:

poseidon1 said:

Having regard to your previous post in April, are we to understand the 1944 trust has been newly discovered and is in addition to the 2nd husband house trust in your prior post?  Starting an entirely new thread without reference to what has forgone is not especially helpful.

Be that as it may,  to answer your new questions:

1) Just the value of  her quarter share.

2) Each trust will pay its proportional share of the overall IHT bill. The 1944 trust will 'eat ' a further proportion of your mother's NRB, as does the House trust.

If you are not assisted by a solicitor ( which I sense to be the case), you may wish to consult one in navigating IHT compliance issues with the 1944 life interest trust trustees, as well as the House trustees.

As previously reiterated all entities (your mums estate and the 2 trusts) are  subject to the same 6 month deadline to pay IHT. 

You have an increasingly complex scenario here which most forumites will not have encountered.

Yes, apologies. I thought this being a new scenario it better to start afresh. Thank you for your clarifications which are very helpful.
We had taken advice from a specialist solicitor when we were only aware of the life interest in the house and have undertaken all work so far ourselves as it has been relatively straightforward.
However, the discovery of the second trust does make things more complicated and of course further dilutes my mother's NRB.
The 1944 trust trustees have sent me a form asking for information about the estate including its total value, NRB available etc, the sort of questions HMRC require on the IHT400 form. Is this normal and permitted practice?

Absolutely normal and standard practice.

 The 1944 trustees have IHT liabilities of their own by reference to your mother's overall IHT position and they cannot establish and provide for their tax payments  ( within the proscribed deadline ) without asking the pertinent questions. Full transparency required here.

Also  bear in mind they may need to organise the sale of trust investments ( with associated trust  CGT liabilties) in computing the net payout due to your mother' s daughter. The sooner they  get the accurate information they need, the sooner they will be able to release what is ultimately due.

Bearing in mind you are now answerable to two separate sets of trustees, you may wish to revisit the solicitor for further assistance. As executor the buck stops with you if errors arise in the various  IHT commutations. At least with a solicitor handling that task, you would be protected by their professional Indemnity insurance if things went awry.

Hopefully this is the last surprise emerging from the woodwork in relation to your mother's IHT exposure.

alkynance

poseidon1 said:

alkynance said:

poseidon1 said:

Having regard to your previous post in April, are we to understand the 1944 trust has been newly discovered and is in addition to the 2nd husband house trust in your prior post?  Starting an entirely new thread without reference to what has forgone is not especially helpful.

Be that as it may,  to answer your new questions:

1) Just the value of  her quarter share.

2) Each trust will pay its proportional share of the overall IHT bill. The 1944 trust will 'eat ' a further proportion of your mother's NRB, as does the House trust.

If you are not assisted by a solicitor ( which I sense to be the case), you may wish to consult one in navigating IHT compliance issues with the 1944 life interest trust trustees, as well as the House trustees.

As previously reiterated all entities (your mums estate and the 2 trusts) are  subject to the same 6 month deadline to pay IHT. 

You have an increasingly complex scenario here which most forumites will not have encountered.

Yes, apologies. I thought this being a new scenario it better to start afresh. Thank you for your clarifications which are very helpful.
We had taken advice from a specialist solicitor when we were only aware of the life interest in the house and have undertaken all work so far ourselves as it has been relatively straightforward.
However, the discovery of the second trust does make things more complicated and of course further dilutes my mother's NRB.
The 1944 trust trustees have sent me a form asking for information about the estate including its total value, NRB available etc, the sort of questions HMRC require on the IHT400 form. Is this normal and permitted practice?

Absolutely normal and standard practice.

 The 1944 trustees have IHT liabilities of their own by reference to your mother's overall IHT position and they cannot establish and provide for their tax payments  ( within the proscribed deadline ) without asking the pertinent questions. Full transparency required here.

Also  bear in mind they may need to organise the sale of trust investments ( with associated trust  CGT liabilties) in computing the net payout due to your mother' s daughter. The sooner they  get the accurate information they need, the sooner they will be able to release what is ultimately due.

Bearing in mind you are now answerable to two separate sets of trustees, you may wish to revisit the solicitor for further assistance. As executor the buck stops with you if errors arise in the various  IHT commutations. At least with a solicitor handling that task, you would be protected by their professional Indemnity insurance if things went awry.

Hopefully this is the last surprise emerging from the woodwork in relation to your mother's IHT exposure.

Thank you for this. The explanation of the trust's obligations make complete sense. Thank you for your help once again