Nil Rate Discretionary Trust

[leighc]

In 2002 a substantial portion of the nil rate IHT threshold was put into a discretionary trust by DoV when my father died, with me as the beneficiary. My mother retained the value of the nil rate sum as a loan under a promissory note, the loan being index linked. The aim of this was obviously to remove the value of the trust from her estate on her death. Will the recent budget have had any effect on this planning? I know some trusts were targeted - would this be one?
Many thanks.
Leigh

[Lee Young]

In simple terms this kind of trust is unaffected, as what the chancellor is seekiing to do is allign the tax treatment of all other trusts with the way discretionary trusts were and still are taxed to inheritance tax.

The structure should be kept under review though as there is a considerable amount of tax at stake. Although this is a common structure it is not always set up or administered correctly and this could jeopardise the expeced tax savings.

[leighc]

Thank you for your reply - that is reassuring. The solicitor who set up the Trust (with his firm & myself as Trustees) said that "there will be nothing for the Trustees to do under the Promissory Note" until my mother's death - hopefully some considerable time ahead. Is there anything I should be aware of/looking out for in the interim?
Thanks again in advance.
Leigh

[Lee Young]

I would not recommend taking such an inactive approach, as it risks the Revenue arguing the whole thing is a sham as nothing was done between the deaths, and therefore this could jeopardise the tax savings you expect. I would recommend at least annual reviews even if the outcome of the review is that nothing needs to change.

[leighc]

Thanks again Lee. In your opinion, would the review require the presence of the original Solicitor or would it be sufficient for my mother & I to put something in writing between us to the effect that I do not wish to redeem the promissory note at this time & that she wishes to retain the loan for the forseeable future?
Last question, I promise!!

[Lee Young]

No need for the original solicitor to be invovled. Review document should probably not use the phrase "for the foreseeable future" but perhaps "till the next review in a year's time".

[leighc]

Many thanks. Will draw up something between us to both sign & date, and review on a regular basis.
Regards

[Katherine]

I would like to add a comment to this discussion, the original solicitor, who is the fellow trustee, is correct. There is no reason for you to do anything provided that the “debt scheme/IOU” written into the original will is a standard clause which states that the trustees must accept a binding promise of repayment from the surviving spouse for any sums borrowed. If this is the case than the trustees cannot demand any of the funds back until after the death of the surviving spouse, therefore completing a yearly note to say that the trustees do not want any of the money back is not relevant since they can't demand any of it back anyway. In relation to the Inland Revenue there is no reason to inform them as the trust is not subject to any tax and therefore they are not going to be interested in it.

[leighc]

Thank you Katherine. I will check the exact wording.
Leigh