My client is a widow. Her husband died in 2005 leaving a Will which set up a NRB discretionary trust on his death. The beneficiaries are my client their three children and any future grandchildren.
No action was taken by my client at the time of her husband’s passing with regard to the will and or trust, ie: appointment out or deed of variation. In light of the change in law in 2007 re NRB being transferable between spouses, I understand that on the death of my client, if no action is still not taken, then her estate will not be able to claim the transferable NRB of her late husband as it was effectively ‘used up’ by the trust.
I am trying to explore the best way to prevent this from happening. While I understand that a Deed of Variation now would be unhelpful re IHT as it’s outside of 2 years, however, will a Deed of Appointment appointing the trust fund in favour of my client (and dissolving the trust) mean that the transferable NRB would become claimable on the death of my client?
The Deed of Appointment will only add to the value of your client’s estate, but as it is made two years after death will not preserve the nil rate band. An appointment in favour of the children may work. The action to take depends on the assets of the estate and the wishes/needs of the beneficiaries, but the nrb trust should be formally administered sooner rather than later… given that over 10 years has passed that’s probably not the most helpful advice!
The nrb will not have been used up unless there were assets available to finance it. Therefore the first step is to establish what assets there were. If everything passed by survivorship the full tnrb still applies.
If there was say a half share of a house held as t in c which covered the nrb then a debt is due to the trustees of the amount of the nrb plus interest that can be claimed against the widows estate on her death, thereby reducing her estate for hit purposes.
An appointment now would not resurrect the tnrb as it would not be read back for iht purposes.
If a debt is due then best either to pay it off now or document it. Check the Will to see what options are available to the trustees so far as this is concerned. A simple iou would be ideal as a charge against the house would prejudice a rnrb claim on
the death of the widow.
It would appear based on your email that the trust remains in existence - and that your client’s estate owes the trustees the amount of the NRB as it was in 2005? I assume that the whole estate passed to your client, but the trust was just ignored? As such, your client may need to take no action to ensure IHT efficiency as she will have a debt in her estate to the NRB trust, although documenting the correct and current position now might be helpful to avoid any challenge in due course.
A Deed of Appointment would not be helpful. That would distribute the assets to your client, and the husband’s Nil Rate Band would have been used in 2005 by establishing the trust. No TRNB would be available.
If the trust is now wound up, I don’t believe that this changes the fact that the trust still utilised the husband’s nil rate band on his death.
As you are outside of the window for a DoV to be effective for IHT purposes, I can’t see that there is much scope for making a valid claim for the transferable NRB on the widow’s death.
Husband’s NRB has now been used by the NRB Trust. Do not appoint to widow as that would put the value back in her estate . It wouldn’t revive his NRB. Best solution now is to fund the trust in some way - ideally on paper, or fund and distribute the proceeds to children if the widow can comfortably afford it.
Somebody on another thread mentioned the possibility of examining whether the trustees might have impliedly advanced the trust fund to widow within the 2 years (so read back under s.144) - that would require an applicable power of advancement that didn’t require a deed or exercise in writing and some trigger event. It’s a long shot.
Simon - I have a similar case where the wife died in 2011 and nothing has been done to establish the NRB trust. The house is in joint names as tenants in common. There is an equity release mortgage that the couple took out in 2010 and the widower has run into difficulties with trying to change product to get a better rate. He does not have the means to wind up the trust by appointing other assets to the children and has asked for our help to resolve matters.
The Will provides for the equitable charge or debt route. We plan to use the charge route unless the lender objects to the Form A restriction remaining. If we have to use the debt route to get a clear title, will SDLT be payable? I note you have mentioned this in past threads.
If the wife had sufficient assets at death to satisfy the NRB legacy other than her beneficial half share in the house, could an IOU be used now without SDLT consequences, even though the assets may have since been spent by the widower, and on his death the debt will have to be repaid out of the equity in the house?
Grateful for your views.
Alexandra Taylor
Botvyle Consultants
I agree with Simon. There was a similar situation with one of my clients and i have just put 1/2 share in the property in to the NRB trust by doing an equitable charge. There may be some transferable NRB available if the value of the 1/2 share is below £325,000. I would put the trust in to place asap before it becomes mandatory to register all trusts.
Also, am i right in saying that you can not do a deed of variation if it is a discretionary trust?
Bearing in mind the equity release mortgage, putting a half share now in the trust is probably not a satisfactory option.
An assent of the half share combined with an IOU, as there are no other assets, would trigger SDLT. There is also Phizackerley/s103 FA 1986 to worry about-ie disallowance of the debt on H’s death if at any time in her life he had made a substantial gift to W. The debt would be disallowed up to the amount of the gift.
These issues resulted in the popularity of the executors creating an equitable charge over the half share when assenting it. H would not have any personal responsibility for the debt, which gets round the above problems. You cannot have exactly the same people as trustees and executors, as you cannot create a charge against yourself. I have never been sure if this is correct, as you act in different capacities, but better safe than sorry.
Enter the RNRB! This is only available in respect of the net value of the interest in the dwelling house, after deducting any charge, in your case the mortgage and the NRB trust charge.
People with equitable charges are now often releasing them to free up the RNRB, with the survivor signing an IOU at that stage, which is fine provided they do not have a s103 problem. SDLT will not be an issue on the release as the share of the house has already been transferred.
So as always, the correct solution depends on your particular circumstances.