IHT liabilty and spousal trust

[dcarr@doctors.org.uk]

Have you considered your sister being nominated as a "Lasting Attorney" for your wife, rather than setting up a trust? You could then bequeath your entire estate to your wife if you pre-decease her, and her interests could be put into the care of your sister by activating the power of attorney if your wife becomes unable to make decisions for herself. This may or may not be an option, depending on your wife's condition, as she would need to be well enough at present to set up the arrangement, and she (and you) would need to ask your solicitor about the pros and cons of such an arrangement.

[mosullivan]

As a barrister doing this sort of thing all the time, I think the clear solution is a trust under which the wife has a flexible life interest with the trustees having power to apply capital for the wife. If there is a full life interest then the Trustees can sell the house and the wife would be entitled to the income.

The creation of a discretionary trust would make sense if care home fees asset protection is an issue - which it is not according the husband. The creation of a discretionary trust would mean inheritance tax on any value in excess of the nil-rate band sum. However, the trust could be wound up by a Section 144 IHTA appointment within two years of death in order to avoid the tax charge. This would involve appointing either absolutely to the wife or on an interest in possession trust.

An LPA appointing the husband and the sister as joint attorneys would not hurt either if the wife has her own property that needs managing.