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Where Taxpayers and Advisers Meet

Nil Rate Band Legacy on Discretionary Trusts

Hanks66
Posts:1
Joined:Sat Jan 26, 2019 11:54 am
Nil Rate Band Legacy on Discretionary Trusts

Postby Hanks66 » Sat Jan 26, 2019 12:18 pm

Hi,

My father passed away recently and I’m completing the IHT400 form.
My parents property, held as Tenants in Common, and worth approx. £700k, is subject to the equivalent NRB being put into a Discretionary trust with the beneficiaries stated as my mum (his spouse) and dependents (myself and my sister) in the Will. The main purpose of this being to ensure that this proportion of the property cannot be used for Nursing care, in the event that it becomes necessary for my mum.
For the residuary estate my mum is the sole beneficiary so Spousal Exemption applies. The residuary estate being circa. £700k, hence why IHT400 is required.

I’m unclear as to how the Discretionary Trust is represented on the IHT400 form and what actions have to be taken post completion of the IHT and probate process to execute this Discretionary Trust? I’ve included half the property value on IHT404, but given the Discretionary trust, how much Spousal exemption do I include for the property?

I assume that the trust will be £325k, equivalent to the NRB, so no IHT is due.
Thanks

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Nil Rate Band Legacy on Discretionary Trusts

Postby AGoodman » Mon Jan 28, 2019 12:09 pm

You should get a solicitor to help you.

For IHT, the spousal exemption will apply to all the value save the nil rate band.

There are three ways to implement the NRB - you can allocate a share of the property to the trust, create a charge over the property in favour of the trust (and give all the property to your mother) or your mother provides a loan note to the trust (and receives all the property).

Each route has pros and cons (I believe a charge is often favoured) but you need to make sure it is done and done properly. There are numerous estates like this that are not properly administered and create a real headache on the second death.


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