Discretionary Trust ... or not?

[123rob]

Mother and father executed “mirror” Wills in 2003. Each Will provided that a discretionary trust be set up on the first death with survivor to be given such capital as may be necessary. They owned their house as tenants in common. Two sons are the beneficiaries in the trust
Both parents separately have assets below the NRB. Mother died in December 2009 leaving father as survivor
Can you please advise whether it is worthwhile continuing with the Trust or, from a tax point of view, would it be better to transfer the assets into father’s name before three months have expired. We are aware that there may be long term care implications as father is in his late 80’s
Thanks for any help you can give
123rob

[Lee Young]

Whatever you do don't transfer the assets to your father WITHIN the three months. If you do this you will not have the benefit of the writing back provisions for s142 IHTA 1984. You need to do it (if you are to do it) after three months but before the end of two years from the date of death.

The trusts were almost certainly set up for IHT purposes but the introduction of the transferable nil rate band has (for IHT purposes) made these trusts almost obsolete.

However there are other reasons why a trust might be useful. They provide protection from care fees, bankruptcy, divorce and creditors, not only for the survivor, but also for the next generation of beneficiary after the death of the survivor. There are long terms real benefits to be had for the entire family. They can also protect against IHT in the next generation, not just with your parents.

Best advice is take advice from the solicitor/tax adviser who is assisting in the estate. The default position in my view should be to take advice before doing anything.

[Anthony Nixon]

Have a look at my article on this site, http://www.taxationweb.co.uk/tax-articles/capital-taxes/wills-trusts-and-iht-planning.html on the uses of NRB trusts for IHT today.

One alternative is to vary the trust in the will to give your father an immediate post death interest. This preserves the transferable NRB on his death but may also help to keep your mother's share of family assets from being counted as his resources in claiming any benefits, help with care fees etc.

Anthony Nixon CTA TEP Solicitor
Partner, Thomas Eggar LLP, Southampton and Chichester
anthony.nixon@thomaseggar.com
023 8083 1224

[123rob]

Thank you Lee and Anthony. I am presently taking legal advice but I do feel that there "must be better professionals out there" and this site would certainly confirm that.
I shall do more research and (in the light of what you say) may post another question
Thank you again
123rob

[maths]

I think the start point should be to decide (ignoring tax etc) what it is you are all trying to achieve.

Prima facie, IHT does not currently appear to be an issue.

There may be a CGT issue with respect to any disposal of the (50%?) property interest currently held in the trust.

As your father is in his 80's retaining the 50% in the discretionary trust should protect it from any claims re care home fees which may be highly desirable.

Without further info' it may be best for the time being to leave things as they are.