I was wondering if anyone has come across the following before, we are dealing with a matter whereby 7 years ago a deed of variation was used in an attempt to remove a nil rate band discretionary trust from a Will, instead of a deed of appointment. If the deed of variation is not effective, the trust still exists even though all assets have been distributed in accordance with the deed of variation to the surviving spouse absolutely. We do not want to lose either the transferable NRB or lose the benefit of having £325,000 in trust. Could a loan note be used to evidence the trust or has anyone else resolved this issue by any other means?
If the class of objects of the NRB trust was closed and all iof them were party to the variation, it may well have validly terminated the trust (and enabling the TRNB to be available to the surviving spouse).
However, if the deed of variation was ineffective, the trust still exists, albeit the only asset thereof may be a claim against the executors for having distributed the NRB gift other than to the trustees.
If the trust still exists, then the testator’s NRB as at the date of their death was used to the extent that the estate was sufficient to satisfy the NRB gift.
As more than 6 years has elapsed, it may be that the assets distributed in breach of trust are no longer recoverable from the spouse (although if the “error” has only just been identified, time might have only just started “running”).
If the surviving spouse was an object of the NRB trust, it might be possible to argue a “mistake” in using a deed of variation instead of a deed of appointment, but you would probably want the security of a barrister’s opinion to support that. There may also be a case to answer by those who advised on, and/or drafted, the deed of variation if it was inappropriate in the circumstances of the estate. Again, though, the 6 year limitation period could be a hurdle, unless the error was recognised only recently.
If the trustees had a power of advancement (power to pay/transfer) in favour of the spouse that did not require a deed or resolution in writing, the trustees of the NRB trust were the same as, or a subset of, the executors and the estate was effectively wound up within 2 years, it might be arguable that the transfer(s) to the spouse amounted to an implied exercise of the power - so coming within s.144(2).
There may be an appropriate equitable maxim for such a situation (how about “equity regards substance rather than the form”).
This would preserve the transferable NRB for the surviving spouse.
Admittedly, the trustees did not actually know they were exercising any power…
I once came across a collection of very badly drafted documents relating to an NRBDT, containing various errors and use of incorrect terminology, such that I felt the effect to be in doubt with the risk of loss of the NRB. I don’t have the detail to hand but the intention was pretty clear and backed up by correspondence from the solicitors advising at the time, which was to create an IPDI for the widow within two years of death. We persuaded the solicitors to deal with (at their cost) an application for rectification to correct the errors.