Discretionary Trust Will - how to wind up and do we need to do a DOV

BreakingGlass

As an Executor to my late Brother-in-Law's Will we were faced with an over-complicated, unnecessary Nil Rate Band Discretionary Trust.  His total estate was less than £100k, because most of his assets passed direct to my sister through survivorship (eg property), or were outside his estate (eg pension and life insurance payouts).

The three Executors were the appointed Trustees of the NRBDT, hence we engaged a solicitor to draw up a 'Deed of Appointment' (4-page document, at a cost of approx £1800) allocating the monies to my sister 'absolutely'.  

NorthYorkie

At the moment we only know that your father's estate, including his half share of the house was less than £325K. We do not know what the value of that share was, so we don't know much of his nil rate band and residence nil rate band have already been used. The residence nil rate band is applied in priority to the 'ordinary' nil rate band. My guess is that most, if not all, of this £175K will have already been used

Poseidon has already explained;

•  a Deed of Variation in respect of your father's will would be expensive and complicated and 

•  a Deed of Appointment to terminate the discretionary trust and distribute the assets to his widow and sons would be possible. 

none of these would enable your father's residence unused nil rate bands (if any exist) to be claimed against your mother's estate. It will however be possible to claim any unused 'ordinary' nil rate band.

So, dealing with your questions;

Icecream72 said:

So I presume that means it is fine to have a deed of appointment (is this the right type of deed?) to close the trust within 2 years and then all of dads estate which are under the allowances goes to mum and she can use his nrb and rnrb?

Yes, a Deed of Appointment would be possible to bring the trust to an end, BUT this will not mean that your mother's estate will benefit from any of father's unused residence nil rate band. His unused 'ordinary' nil rate band will however be available.

At this point would we still need to do a DoV from mum? She would like to gift us (her children) some of dads estate  (not the house or even part of it) or because it is all within the total £1m allowance (nrb and rnrb) anyway and we have no grandchildren issues then straightforward gifting by mum is covered within the available allowances?
No you cannot 'do a DOV from mum' as there is nothing to vary. You cannot vary the dispositions of a will which hasn't yet come into force, Also she will not have a £1m of nil rate bands; only her own £500k plus whatever can be claimed of your father's unused 'ordinary' nil rate band.

poseidon1

NorthYorkie said:

At the moment we only know that your father's estate, including his half share of the house was less than £325K. We do not know what the value of that share was, so we don't know much of his nil rate band and residence nil rate band have already been used. The residence nil rate band is applied in priority to the 'ordinary' nil rate band. My guess is that most, if not all, of this £175K will have already been used

Poseidon has already explained;

•  a Deed of Variation in respect of your father's will would be expensive and complicated and 

•  a Deed of Appointment to terminate the discretionary trust and distribute the assets to his widow and sons would be possible. 

none of these would enable your father's residence unused nil rate bands (if any exist) to be claimed against your mother's estate. It will however be possible to claim any unused 'ordinary' nil rate band.

So, dealing with your questions;

Icecream72 said:

So I presume that means it is fine to have a deed of appointment (is this the right type of deed?) to close the trust within 2 years and then all of dads estate which are undeNorthr the allowances goes to mum and she can use his nrb and rnrb?

Yes, a Deed of Appointment would be possible to bring the trust to an end, BUT this will not mean that your mother's estate will benefit from any of father's unused residence nil rate band. His unused 'ordinary' nil rate band will however be available.

At this point would we still need to do a DoV from mum? She would like to gift us (her children) some of dads estate  (not the house or even part of it) or because it is all within the total £1m allowance (nrb and rnrb) anyway and we have no grandchildren issues then straightforward gifting by mum is covered within the available allowances?
No you cannot 'do a DOV from mum' as there is nothing to vary. You cannot vary the dispositions of a will which hasn't yet come into force, Also she will not have a £1m of nil rate bands; only her own £500k plus whatever can be claimed of your father's unused 'ordinary' nil rate band.

NorthYorkie has provided an excellent summary of the different options and potential outcomes therefrom.

The insertion of the discretionary trust in these particular circumstances  and having to work with this medium to appoint assets out to an appropriate beneficiary, is the factor that negates much of the deceased father's NRBs for future use, even where the recipient trust beneficiary is the widow. 

As advised, an appropriately qualified solicitor should ( hopefully) be able to explain in more detail although have to warn the explanation is very technical.

Incidentally, for the OP' s benefit and others, the definition of 'remoter issue'  includes potential  unborn children from  adult grandchildren.  However even where there are no grandchildren it should be remembered that it remains biologically possible for male heirs to sire children at virtually any age ( think Rod Stewart and  more extreme Robert de Niro as examples ). As Remote a possibility as this sounds  in the OP's circumstances, this is the fundamental hurdle with a DOV which might seek to stifle a discretionary trust at inception.

I am a fan of discretionary trusts for the very wealthy with huge IHT exposure. However for the mass of the ordinary general public with modest and simple estates they are undoubtedly an unmitigated nuisance bordering on disastrous.

Icecream72

I’m still finding this confusing but would like to get my head around it so I know that the advice we get from a solicitor is the right advice and we’re able to ensure we can sort this without too much hassle. Ideally with just a deed of appointment to close the trust within 2 years.

So with further detail his total assets (investments, savings etc) are just under 300k which would be within the NRB covered by the trust which would leave say 25k to use up the full NRB allowance. Would this 25k be a top up part from the residence that can be used in the trust  to get the full 325 allowance? 

dads share of the value of the residence where my mum still lives would be a maximum of £125k so it’s within the RNRB allowance of 175 (total property value of 250k although mum still lives there so value in future could change of course) 
so if 25k from the residence goes into the trust to achieve the full 325k NRB allowance what then happens to the 100k which is dads remaining share of the full value of the residence? This is what I’m really unclear on.

he had a total estate worth 425k (300 savings plus 125 residence) so what happens to the rest of the residence value (the 100k) that can’t be used in the trust as he’s  already used up the full NRB allowance within the trust ? 

Keep_pedalling

Icecream72 said:

he had a total estate worth 425k (300 savings plus 125 residence) so what happens to the rest of the residence value (the 100k) that can’t be used in the trust as he’s  already used up the full NRB allowance within the trust ? 

That would pass to the residual beneficiary, your mother.

Icecream72

Ok so the 100k would pass to mum however she is still residing in the house and intends to for a long time so what does that mean practically?
 Does that mean she owns all of the house except the 25k which has gone into the trust? So she owns 90% of the house at this point in time?

she is also a trustee and beneficiary of the DT along with her children but as the trust is for her until her death (at which point the assets from the DT pass to adult children) could all the trustees including mum just agree to pay the remaining 325 to mum and close the trust? 

I’m still unsure about the RNRB as in a post in Feb this year @kee@Keep_pedalling you pointed a question to this site which says the RNRB is available with DTs

https://techzone.aberdeenadviser.com/public/iht-est-plan/residence-nil-rate-band-guide

poseidon1

Icecream72 said:

Ok so the 100k would pass to mum however she is still residing in the house and intends to for a long time so what does that mean practically?
 Does that mean she owns all of the house except the 25k which has gone into the trust? So she owns 90% of the house at this point in time?

she is also a trustee and beneficiary of the DT along with her children but as the trust is for her until her death (at which point the assets from the DT pass to adult children) could all the trustees including mum just agree to pay the remaining 325 to mum and close the trust? 

I’m still unsure about the RNRB as in a post in Feb this year @kee@Keep_pedalling you pointed a question to this site which says the RNRB is available with DTs

https://techzone.aberdeenadviser.com/public/iht-est-plan/residence-nil-rate-band-guide

 
OP 1st point, you appear to have entire misconstrued @Keep_pedalling's reference to the RNRB in the context of discretionary trusts.

 As the Aberdeen adviser article clearly  explains this can never be the case for DTs to act as a conduit for the RNRB.  It only applies to trusts with interests in possession such as IPDI arrangements. So not an option in the case of your father's DT. It is the remnants of  your father's RNRB that is available to your mother in future ( ie the £100k difference).

2nd point, the full £175k residence nil rate band can only only be claimed where the property is worth more than £350k at date of death of 2nd spouse. On the current value you quoted your mother's half share would only use £125k of her allowance, plus the £100k remaining from your father if £25k is used for the DT.

Important to note, that if your mother's personal estate on death  ( excluding the trust) currently  exceeds  £550k ( her current cumulative NRBs plus father's RNRB), it would  not make sense to break the trust wholly in her favour since those additional assets would likely push her into IHT terrority. 

The best approach will be for whatever amount your mother wants the both of you to inherit this should be achieved via the Trust distribution within the 2 year period. As for the top up £25k from your father's share of the house, this should be distributed to your mother so she ends up owning a clean 100% of the house.

The end result you should be aiming to achieve when the dust settles is :

* Trust cash and investments of £300k divided between your mother and yourselves, based on the amount she would like you to have.

* £25k represented by a share of the house, transferred out of the trust to your mother 

* Trust wholly terminated within the 2 year period.

Hopefully this is a decent road map to present to a solicitor in achieving an optimum outcome for the family.

Icecream72

Thank you @poseidon1

Thank goodness my mum recently saw fit to change her will to something far simpler!