I have an administration whereby the first to die had a NRBDT in his Will. It has emerged that, although there are draft Trustee Minutes which suggest which assets should be constituted in the trust, these Minutes were never signed and no formal action has been taken to constitute the trust. The surviving spouse has now passed away.
I am just wondering if anyone has come across this before and whether anyone has any ideas as to how this should be approached. There seems to be limited commentary available but from what I have been able to find, it would seem that the trust needs to be formally constituted even if it is to just be wound down?
The failure to set up the NRB discretionary trust is not unusual.
There have been a number of posting on the Forum in relation to this issue, with a number of different ways to “resolve” the situation.
My preferred route is usually to treat the matter as an unpaid legacy and for the trustees to be entitled to the outstanding capital sum, plus interest from the expiry of the “executor’s year”.
Whilst the surviving spouse will likely have been a beneficiary of the trust, their estate is unlikely to be within the beneficiary class so, even if we are still within 2 years of the first death, it is unlikely HMRC will allow spouse relief on an appointment to the surviving spouse post their death (whether, or not, a breach of trust).
Depending upon the powers in the will of the first to die, it may be that their executors can exercise the discretion to appoint the trust fund (if now to be distributed) without constituting the trust. This could have tax benefits.
If there has been a significant length of time between the 2 deaths, consideration may also need to be given to whether the failure to satisfy the NRB legacy has caused a loss to the trust fund and, if so, whether a claim for compensation/restitution against the executors arises.
There will be a debt due from the surviving spouse’s estate plus interest due to the trust, which needs to be paid, and then the trustees need to decide whether to continue with the trust or not.
The debt will be deductible from the estate of the spouse for iht purposes, provided s103 Finance Act 1986 is not an issue.
My view is that the NRBD trust in the will is ‘activated’ by the death and thus arises automatically on the death of the testator. The gift is normally made by the will of a cash sum equivalent to the available nil rate band. How that is satisfied is up to the executors.