IHT and Nil Rate Band Trust

Thank you kidmugsy

kidmugsy wrote: »

If it's a discretionary trust it would avoid the capital being added to his estate when he dies.

Yes it's discretionary and only covers cash value. The remainder of the estate including a high value property is left absolutely and so presumably IHT is due at 40% on that value? If so, I'm not sure where the money would come from to cover it if it was all in trust.?

kidmugsy wrote: »

I'm doubtful of the wisdom of making a solicitors firm a trustee. They would be pretty much unsackable. Better, perhaps, to have a second lay trustee and the trustees paying for whatever legal and investment advice they need.

Agreed.

kidmugsy wrote: »

I'm also uncertain that making the child the sole beneficiary is wise. How about him and any descendants of his, even if such people are hypothetical at the time? It's also possible to give the trustees discretion to add beneficiaries.

Potential descendants are included.

kidmugsy wrote: »

But I speak as an amateur: you need to mull this over with a professional, such as a lawyer from STEP.
https://www.step.org

I understand and will investigate this. Any further considerations you can think of helps

S

Thank you kidmugsy

kidmugsy wrote: »

Leaving the property directly to a descendant means that there will be the extra Property Nil Rate Allowance in play. And (I assume) a transferable PNRA from the deceased Pa/Ma. So that would be another couple of hundred thousand avoiding HRT (17/18 figure).

I would ask the lawyer, I think, whether there was a case for leaving a fraction of the house direct to the child (to use up the PNRAs) and a fraction to the Trust: that should leave some cash outside the Trust to pay the IHT bill.

In English law a property can have up to four owners. I'm not sure whether the Trust counts as one, or as two, there being two trustees. But in this case it doesn't matter.

The deceased died in October 2016 and did not own the property although it was to be put in trust for them - now it is to be left absolutely to the child/descendants. So, only single £100K PNRA at the moment, I think.

Can the capital in a trust not be touched? Only the income? There is a Letter Of Wishes allowing for 'favourable consideration to making interim distributions before the final distribution takes place' in case of financial hardship etc.

kidmugsy wrote: »

I used to be trustee of a trust set up by a will. We could distribute capital over time (though we never did because no beneficiary asked for a distribution) and we could lend money to beneficiaries too - which we did after assessing requests. These rights were (if my memory is right) set up in the will that established the trust.

Thanks again kidmugsy

I've downloaded some of the leaflets from STEP so am understanding a little more about trusts - yes I believe you are correct that rights are all set up via the will.

Under the 2008 Finance Act would there be any transfer of NRB to a spouse from the first deceased if the estate was valued at 431K and £50K tax free bequests were made to children from a first marriage? Should be £275K transferrable I think?

I'm not quite sure what 'non exempt or partially relievable legacies passing under the Will' means in the calculation but I don't think it applies.

S

kidmugsy wrote: »

The transferable bit of the NRB is calculated as percentages. So divide the £50k by whatever size the NRB was at the time of death and multiply by 100%. That's the %age of NRB used up. The remaining %age is transferable.

Example: suppose the NRB was £250k at the time. So 20% was used up, therefore 80% remains. Using the current NRB of £325k, that means 0.8 x £325k may be transferred i.e. £260k. That's my (amateur) understanding.

Thanks kidmugsy, the NRB hasn't changed since the first deceased in October 2016, so still 275K I think.

The expressed assumption of the settlor is that everything has been left to the adult child in Trust - will try to get some clarity on that intention.

In fact everything was left in trust to the first deceased but only the 700K NRB (inc. the PNRB?) is left in trust for the child.

This would lead to a hefty IHT liability on the rest of the estate, which would have to be covered by the sale of the family home, and then a £700K NRB portion is left under the partial control of a solicitor and his unknown successors.

My understanding at the moment is that the NRB trust makes no difference at all to the IHT liability, unless there are liabilities with any subsequent disbursements?

If the intention is indeed to leave everything in trust then I would imagine the will would need to be re-done with clarification of the role of the trustees and access to the assets and whether it is the best thing to do.

S