Nil Rate Band Discretionary Trust Deed of Appointment

I have returned to this thread to update and thank all of you that contributed to the discussion over my questions on the handling on my Grandmother’s estate. I hope my update may be of use to any future poor soul who is experiencing the same issues as we have come up against.

We made our first official complaint to the solicitor in March and had a reply 6 weeks later explaining that the Solicitors firm were involved in a previous case many years ago and the ‘Revenue quite categorically stated a unilateral release of a debt not founded on nor accompanied by consideration, if not made by Deed, is void both at law and in equity.’ The solicitors believe the law has not changed on this matter and put the argument to HMRC taking the approach that getmore4less first advised in this thread that the trust should still stand with my Grandfather’s nil rate allowance protected inside it.

We responded to the solicitors reply with a further letter of complaint, 10 pages worth this time highlighting all the other errors that have been made through this process. In researching all the documents and gathering dates and information to produce this second letter I stumbled upon an invoice sent to my Grandmother which was the only piece of evidence I could find giving me a reason why there have been problems over what should have been a quite straight forward trust leaving my Grandad’s nil rate allowance directly to my Mother, reducing my Grandmother’s estate value to beneath the inheritance tax threshold. The final sentence of the invoice explained that the solicitor had advised my Grandmother and Mother on the change in the law in December 2007 and acted upon it. This was a big clue that the solicitor had misunderstood the change in the law and thought that by appointing the trust to my Grandmother it would mean my Grandfather’s nil rate allowance would be deemed to be whatever the allowance had increased to when my Grandmother should pass away. There was however never a deed created at this point.


We also raised the point that the solicitor had attempted to make the Appointment 36 months after my Grandfather’s death when there was a time limit of 24 months following the death of the first spouse so it would have been ineffective even if a Deed had been created. We referred to Section 144 of IHTA 1984 on this matter as I had discovered these 2 webpages which I interpreted as being related to the problem we were facing:

http://www.lockharts.co.uk/site/services/willstrustsprobate/Wills_Estate_Planning13.html

https://www.gov.uk/government/publications/nil-rate-band-discretionary-trusts/practice-guide-70-nil-rate-band-discretionary-trusts

We have just received a reply from the solicitor to our second letter of complaint. They have included a letter sent by the original solicitor to my Mother in December 2007 in which he advises that if they had not changed my Grandfather’s will then it would now be possible for my Grandmother’s estate to have his nil rate allowance added to hers on her death and that the change in the law meant the variation to my Grandfather’s will was now superfluous. He explained that whilst there was no way that they could undo what had already been done, he believed they could simplify matters by agreeing as trustees that the nil rate band debt which was owed by my Grandmother to the nil rate band trustees could be extinguished by appointing or releasing the whole of that debt to her absolutely and that this will avoid complications in the future and also any risk that the Revenue might still investigate the scheme and challenge its validity.

The solicitor handling our complaint has said they do not believe the solicitor was correct in saying this and that may mean there is a claim against their firm in relation to that advice which we may need to take independent advice on. The complaints solicitor confirms the steps proposed by the original solicitor could only have been implemented by a Deed but believes we are mistaken in saying that a Deed of Appointment would be required to do this. He says that whilst a Deed of Appointment is normally, in this context, a deed which transfers assets out of a trust, what would have been needed in the circumstances to make the release of the debt effective would have been a Deed of Release of the debt.

The complaint solicitor also disagreed that there was a deadline of 24 months after the death of the first spouse in which to create the Deed. He believes that Section 144 of IHTA 1984 refers to an opportunity for trustees of a discretionary trust to appoint assets out of that trust within two years after death and to have that re-arrangement treated as the deceased’s for IHT purposes. He says this section applies to any discretionary trust and not just nil rate band discretionary trusts and that its use within the context of a NRBDT could well be counter-productive as if appointed to the surviving spouse the whole point of the NRBDT would be lost. He believes we have therefore misunderstood the application of section 144 and what was important was that after the law changed in 2007, the nil rate band debt should not have been released.


He believes that the fact this was not done by a Deed of Release means that the debt on my Grandmother’s estate has probably been preserved. This is currently with the technical department at HMRC and we await confirmation on this. He also said that if there had been a reverse of the original strategy (to protect my Grandfather’s nil rate allowance within the trust) that it was not as a result of missing a deadline but as a result of the original solicitor misunderstanding the changes proposed by the Chancellor in his autumn budget statement in 2007. I’m still unsure about this part of his letter and whether we are still right about the 24 month deadline.

The rest of the letter includes several apologies, acceptance of mistakes and agreeing this situation should not have arisen because on reading through the files it would have been quite apparent to everybody at an early stage what the issue was. They do not accept there was any attempt to try to cover up the problem but that the letter of December 2007 caused unnecessary confusion to the members of the firm dealing with the estate and they apologise for this. They have agreed there will have to be some adjustment in relation to the charges made by the firm to reflect that the estate shouldn’t bear the costs of those matters or putting them right which they will do once the issues regarding inheritance tax have been resolved with HMRC. They accept the time it has taken (26 months and counting) and the difficulties that have arisen as a result of the administration of the estate have caused my Mother worry and aguish and they apologise for this. They also agreed it was a discourtesy of the original solicitor not to have informed my mother that he was retiring last Autumn resulting in my mother continuing to send communication to him for a further 4 months after he’d left and that the firm should have told my mother of his retirement also.

I will be writing a reply requesting the estate is finally paid out to my Mother as I do not see any reason why they should continue to hang onto it having admitted that if any inheritance tax is still due then it is because of their mistake. I am so relieved to feel we no longer have to fight and research and justify and argue over this and have not cried so hard since my Grandmother passed away, this time with relief and utter nervous exhaustion. We could not have done this without your help, guidance and support. I would like to say a particularly huge thank you to SeniorSam who also gave me extensive further guidance off the forum. I appreciate you all give up your personal time to help others and guide them when they are at their most confused and desperate. Thank you all so much and thank heavens these forums exist.