Flexible Life Interest Trust and IHT

poseidon1

Would you mind providing the redacted wording of this trust.

If I can see precisely how it has been constructed I can perhaps confirm whether the estate comprised in the trust, meets the conditions for an Excepted estate which would eliminate any need for completion of IHT 400 and allow you to truthfully confirm in the affirmative that all assets have been left to a surviving spouse/civil partner, thereby avoiding any IHT charge.

Incidentally, I am somewhat concerned that the discretionary trust 'rider' clauses on your mother's death will lose the family access to your father's transferable residence nil rate band (RNRB) of £175k.

The size of the estate could increase in future years, so loss of that RNRB would be unfortunate, especially as the discretionary trust clauses are not required to protect the trust assets from potential nursing home fees assessment. The life interest on your mother's behalf is protection enough.

DecisiveBobcat

Hi Poseidon1, thank you for your response. I have attached the redacted wording of the trust.

will3-redacted.jpg

will4-redacted.jpg

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/82087177#Comment_82087177

Thank you OP.

I am pleased to confirm that since clause 7.2 provides your mother with an immediate right of present enjoyment of the entire trust fund it meets the criteria of a qualifying IPDI trust. The following article explains -

https://www.gnlaw.co.uk/news/immediate-post-death-interest-ipdi-trust/

Assuming none of the clauses that precede clause 7 made legacy gifts to anyone other than your mother then this permits you to state your mother 'inherited' all assets from your father inclusive of the trust. No IHT therefore arising or any need for IHT 400.

However It is disappointing the solicitor failed to explain this when instructing you to handle probate yourself, since this is not something an inexperienced lay-person can be expected to understand.

As for clause 7.3.1 which provides powers to revoke the life interest in favour of a discretionary arrangement, this is a passive provision and would require specific and deliberate action by the trustees to come into effect. Accordingly, if it is ignored throughout the duration of the trust until your mother's death, the default provision via clause 7.3.4 is that the entire trust fund reverts to surviving children.

This means the trust fund is amalgamated with your mother's personal estate for IHT purposes but importantly preserves your father's transferable RNRB thereby providing total NRBs of £1 million (based on current reliefs) on her eventual death.

Finally, you mentioned other assets apart from property is comprised in the trust. Is this cash, stocks and shares and/or funds derived from ISAs? If so is the reason for this is because your mother is perceived to incapable of managing these funds herself?

Investing trust monies to produce income for life interest beneficiaries attracts unfamiliar annual trust tax compliance , administration and accounting obligations on lay trustees. There are also limitations by way of banking and investment services on behalf of trustees as many OPs to this forum have found. If your mother is perfectly capable of managing her own funds, then I would be inclined to limit the trust fund to the property only, and appoint all the cash assets for her to hold personally. You would then be able to register the trust as 'non taxable' on HMRC's trust register - see link below

https://www.gov.uk/guidance/register-a-trust