Hi everyone,
I have a case where the grandmother wants to leave her property to her grandson (aged 13) while giving his mother a lifetime interest.
Does this affect entitlement to RNRB if the grandson is not 18 when the grandmother passes away?
Thanks,
David Park
Mayfair Estate Planning
Hi David. The RNRB would apply in this case, unless the granson’s reversion was stated as contingent on him reacing 18. It must vest in him on his mother’s death.
Guy Birtwistle
Fishers Solicitors
Hi David,
If the daughter is given an immediate right to enjoy the trust property then a qualifying interest in possession trust will have been created in the will (IPDI). This means that the property has been left to a direct descendant (the daughter) and provided the property is a qualifying residence (owned by grandmother and used as her main residence at the same time) then her PRs will be able to claim her RNRB. Is there any transferable RNRB that can be claimed? If you move forward to the daughter’s death the value of her interest being a life tenant is included in her estate for IHT purposes. The property is being left to the grandson (remainderman) but whether or not the daughter’s PRs can claim RNRB on her death depends on whether the property is classed as a qualifying residence for her. In other words if the daughter doesn’t live in it and treat it as her residence from when the grandmother dies it wouldn’t be a qualifying residence interest. But the daughter might have another property that RNRB could be used against.
Regards
Kim Jarvis
Canada Life
If the mother is being given a life interest, the status of the grandchild on the grandmother’s death is irrelevant unless the mother dies before the grandmother.
It is the mother’s relationship to the grandmother that will define whether RNRB is available on the grandmother’s death.
On the termination of the mother’s life interest on her death, provided the property passes to the child absolutely RNRB will apply at that time (for the benefit of the mother’s estate).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
If the mother is a direct descendant and has a life interest, then the RNRB is satisfied by this alone, it is irrelevant what the grandson’s (rermainderman) age or status is irrelevant.
The asset is of course in the mother’s estate for IHT upon her death.
So why would the advice not be for the will to provide that the asset passes to a Trust with an Interest in Possession for the grandson, he is the default beneficiary and his mother be listed as a Discretionary beneficiary. Memo of wishes for the Trust could then request the Trustees allow the mother to reside and review ongoing, but for life unless she no longer requires to do so.
Select the right trustees of course, possibly not the mother, but certainly not her alone.
This achieves what is needed, but without the potential IHT charge upon the mother’s death and flexibility for the use of assets by the grandson before the life tenant’s death.
Bob Massey
Countrywide Tax and Trust Corp
Thank you for these responses. I appreciate them all. The mother is currently in receipt of Housing Benefit, Child Tax Credits, and Employment and Support Allowance. I presume that housing benefit would be affected by these solutions (as there would be no need for it). Would the other benefits be affected by her having a life interest trust in the property?
David Park
Mayfair Estate Planning
David, why is there a need to give the Mother a life interest? If she were not to live in the house, by choice or otherwise, any income form the asset or any that replaces this would be hers by right and would affect other benefits.
By using a Flexible IIP Trust with the grandchild as the IIP/default beneficiary then, whilst she would have access to the capital and income, she has no right to this, it is subject to Trustees discretion. The solution is as I suggested a couple of weeks ago.
Bob Massey
Countrywide Tax and Trust Corp
Bob, if the grandson has an interest in possession, then the trustees cannot ignore that and allow the mother to live in the house to the exclusion of the grandson in the long term. The grandson either lives there, or it is let out and he enjoys the rent. Any other option excluding him and allowing the mother to live there for life is a breach of trust.
An alternative is to leave the house on a discretionary trust, but then there would be no RNRB.
Simon Northcott