How to deal with NRB discretionary trust and promissory note in IHT 400

(sharon edelstyn) #1

I am dealing with the following:
H (first to die in 2004 before TNRB) left a discretionary trust of NRB. His estate was quite small. Wife and trustees (children) then entered into a deed of covenant giving her all the trust monies in return for a promissory note. The trust monies were in effect H’s half share of the family home. Just before she died she then transferred the whole of the property to her two children (she continued to live there). My question is how to deal with the promissory note and the gift to children on the IHT forms. Which schedules do I use? Do I say the value of the whole property is within her estate as a result of the deed) and deduct the trust monies appointed to her as a debt to the Trust? And which schedule to use to deal with the GWROB? This isn’t a taxable estate but I would quite like to make sure I am using the correct forms.

(Paul Saunders) #2

I appreciate that I’m not answering the question raised but, by making the gift of the house, the widow has caused her estate to be insolvent and unable to satisfy the promissory note.

From an IHT perspective, there can be no diminution in the value of the GROB, despite the fact the liabilities of the estate will now exceed the value of the assets within it.

What did the trustees intend to do with the trust fund? If to appoint it to the children then, despite the situation being irregular, the outcome will be much the same. However, where the intention is that the beneficiaries of the widow’s beneficence are not also the intended beneficiaries of the trust fund, the trustees are left in a difficult position, as the widow’s gift may need to be set aside as a gift “intended” to defeat creditors (i.e. the trustees being the “owners” of the promissory note). If the children merely made up the shortfall themselves, I believe this would be treated as a transfer of value by them, rather than reducing the value of the purported gift of the house.

Hopefully, in the situation in question, the children are intended to receive everything in any event.

Paul Saunders