H & W have been married before. W has 2 adult children from first marriage, one of whom is disabled.
W’s Estate is worth in region of £4m. Husband’s is around £300,000. W’s house (in sole name) worth £800,000.
One of her assets is a loan of £2m which is currently being repaid monthly, interest being applied.
She wants to leave:
(1) house on life interest trust for husband, along with the loan repayments (including income and capital) for his lifetime which she is envisaging will cover cost of upkeep of house/living expenses.
(2) house (and whatever is left of loan ) will go to non-disabled son on death of H.
(3) Residue split equally: half to non disabled son and half into discretionary trust to be used primarily for disabled son.
My issue here is the IHT on the house. W’s NRB will be used up on her death. Value of house will then be taken into account in H’s estate. I know that the IHT is split between the trust and H’s estate, but where does the cash come from to pay it?
What is the best way around this? My initial thought is for the house and loan to go into a discretionary trust on W’s death with a letter of wishes stating that H should have right to live there. But this will then remove availability of RNRB.
Or the house/loan go into discretionary trust after H’s death and the trust bears cost of IHT. Again the issue of the loss of RNRB.
Can anyone help?