Whether to utilise a nil rate band discretionary trust contained in a Will or to rely instead on the transferable nil rate band. There are still advantages to using an NRB discretionary trust which are considered briefly below.
In many cases the introduction of the transferable nil rate band will mean that no special attention needs to be given to creating a nil rate band legacy, or a nil rate band discretionary trust (“an NRB Trust”). There are still some advantages to the NRB Trust in particular which should not be overlooked.
An NRB trust is still an effective means of shielding assets from the local authority charge in respect of residential care for the elderly. A legacy to the children may be simply what the testator wishes to do.
The assets of an NRB Trust may appreciate in value. The growth may outstrip the increase in the nil rate band between the death of the first to die and the second to die. To that extent an NRB Trust may prove to be more tax advantageous than taking advantage of the new transferable nil rate band. The current NRB allowance of £325,000 has been fixed until at least April 2015. If an NRB Trust is contained within a Will, it is possible to reconsider the use of the trust after the death of the first to die.
An appointment to the survivor between 3 months and 2 years from the date of death of the first to die will be read back for IHT purposes to the date of death under s.144 IHTA 1984. There is a trap for absolute appointments (but not appointments which qualify as IPDIs) which are made within 3 months as section 144 will not apply to such appointments– IRC v Frankland). If the trap is avoided, an absolute appointment or an IPDI to the survivor will attract the spouse exemption and the first to die’s nil rate band will be unused and the survivor will get a 100% increase to his or her nil rate band on his or her death. It may be desirable to use an NRB Trust when dealing with the will of a remarried widow or widower and their new spouses where there is an unused NRB from the previous deceased spouse that can be utilised. As part of the probate process decisions must be made whether to establish and use the NRB trust by transferring control of the assets to the trustees or to appoint the assets from the trust to the surviving spouse and thereby dismantle the trust by deed; preserving the NRB of the deceased to be transferred to the spouses estate on their death. This decision rests with the appointed trustees of the trust and will depend on the assets comprising the NRB, the current situation of the beneficiaries and the wording of the trust contained within the Will. They will also need to consider the intention of the testator and any letter of wishes left to assist their decision. SWW Trust Corporation can assist you with making this decision and facilitating your chosen course of action.