nil-rate Discretionary Trust, when children already utilizing assets

[Nigel -new to Forum]

A married couple, with 4 adult children, wish to use a nil-rate Discretionary Trust to minimise IHT- as they pass assets to their children upon death.

The primary assets of the couple consist of their primary home (occupation will continue by the surviving spouse) plus 3 additional homes, which are (and have been for last ten years) occupied rent-free by 3 of their 4 children.

Is there a high risk that the Revenue would view this NRDT as an Interest in Posession trust, since 3 of 4 children have such existing interest in the assets?

Your comments appreciated.

[DF]

Even if it is an interest in possession trust the assets will come out of the couple's estate and be included in the estates of the children so there is a transfer of value for IHT purposes. I do not know th terms under which they already occupy the properties but they may already be deemed to have an interest in possession.

You may, of course , have a capital gains tax problem unless you use a disc trust in which case any gain can be held over.

D

[timbo33]

Nigel,

Discretionary Trusts can be used either in lifetime or on death (formed under your will)

In either case, there is no IHT advantage if assets greater than the current Nil rate Band are gifted into it, so if you are talking about 3 properties they would need to be worth less than £510,000 in total. (you can't use your principal residence in quite the same way, but can set up a reversionary IOU scheme as part of your will planning which would allow half of it up to £255,000 to be passed to your trust)

provide the beneficiaries are truly discretionary then no interest in possession should be implied.

In any event, if your children are deemed to have an interest in possession then the trust assets would be counted as theirs and not yours on death...it just gives them an IHT problem that you are trying to avoid.

If your children are living in the properties rent free why didn't you just transfer the assets to them? Now they've been there 10 years a CGT liability will have accrued which the discretionary trust gets round by use of holdover relief, but it would have been simpler to simply gift the properties to your children.

Anyway, you and your wife can both give away assets now up to £255,000 each into a discretionary trust without incurring IHT. Any excess would incur IHT at 20%.

You could give more if direct to your children but then CGT could be liable.

You can't have two bites at the nil rate band so if you gift £255,000 into a discretionary trust and die within 7 years, any nil rate band planning in your will is negated.

talk to a GOOD solicitor and a GOOD IFA who both know about estate planning.