Property into a nil rate band discretionary trusts

[L Smith]

I have seen several similar queries but not one which answers mine exactly (I hope, but apologise if there is). My mother has been told that if she puts the share of the family home left to her by my father, owned as tenants in common, into a discretionary trust she will have to pay rent to occupy it. My father gifted the half to my mother but he has been the first to die. How has she reserved a benefit or fallen foul of the pre-owned asset charge when she never owned my father's half? If she puts it into the trust is it true that she must pay rent? What if she does a charge or IOU instead of actually transferring a part of the property to the trust?

Any help gratefully received.

Thanks

[Lee Young]

Does father's will include a nil rate band discretionary trust, into which assets are yet to be put? If not, did he die within 2 years?

[L Smith]

Yes it does.

[Lee Young]

in which case does the mechanics of the trust allow for the charge and/or IOU methods of funding to be used?

[L Smith]

I believe so.

[Lee Young]

Assuming it does, then she will not have to pay rent. If your solicitor told you this, get one who knows what they are doing.

lyoung@clarkewillmott.com

[L Smith]

It was her solicitor. Does she have to go the IOU or charge route (which I must say she doesn't understand). She fancies the idea of putting a part of the propert in instead. Her solicitor seems a bit unsure I must say hence me contacting this website to ask.

Thanks

[Lee Young]

Historically putting the property into the trust has never been popular because of the risk that the Revenue may treat the arrangement as another form of trust which does not carry the IHT advantages. IE you lose the tax benefits yo uare seeking to secure.

The charge/iou is preferable as it leaves the survivor inheriting the entire estate and simply owing a sum of monewy to the trustees. Generally the sum is not called in, and therefore the trust has little impact on day to day events.

The solicitor needs to brush up on his/her skills at explaining things!

[bob.fraser@towrylaw.]

If the IOU route is used, there may be a liability to stamp duty land tax (SDLT). This is less likely under the charge route.
Given the uncertainty of the solicitor, I would recommend that the wording of the discretionary will trust be checked over by a solicitor specialising in estate planning (use one who is a member of the Society of Trust and Estate Practitioners (STEP - see www.step.org).
Unfortunately I see far too many Will trusts that solicitors have copied from manuals or other Wills without understanding exactly what they are doing, which can be a recipe for disaster.

Bob Fraser
Chartered and Certified Financial Planner

[Peter D]

Allow me to clarify how a strong and proven NRB DT works. Firstly a share of the property ideally should not go into a DT as this does not, in some circumstances, lend itself to best practice. Then a spouse passes away the Will should contain an inherent ( can be a separate document referred to and kept with the Will ) 'Deed of Trust' this apportions the estate to equal share in value, not half the property, is half of everything valued in the whole estate. This value, or up to the NRB, is placed in the Discretionary Trust and an OIU or Promissory Note lends it to the surviving spouse. They can continue life and do what ever they want with the estate but when they pass away the IOU for the same value as it was at the first DOD is deducted form the estate followed by the 2nd deceased NRB then any remainder attracts IHT. Is the estate is smaller than the NRB so be it, the IOU may not be satisfied but that is not a problem as the surviving spouse had to live a normal and may be long life. Regards Peter