NRBDT and failed PET

Trusts Discussion
1

Husband (“H”) dies in 2017. Wife (“W”) predeceased in 2013. W made a gift of the nil rate sum to a Discretionary Trust (“DT”) in her will. Assets falling to DT included her share of property owned as TICs with H. Property was unregistered at the time. Value of her estate was less than £325k so entire estate fell into DT.

On H’s death, it transpires all of W’s assets had been treated as passed to H, including property. No formal documentation to appoint out to H. In 2015, H gifted property to his grandson (no GROB). HMLR entries show grandson as legal & beneficial owner.

Issues:
H’s estate is potentially taxable when adding the value of his estate and the full value of the failed PET.

Query: How do we treat the management of the DT and the question of TNRB? Can we treat the assets as passing to H despite no Deed of Appointment having been executed? If so then H has made a PET of the entire value of the property which has failed. However with no Deed of Appointment am I correct in saying that S144 IHT does not take affect?

Or can we unscramble what has been done and treat 1/2 the property as actually trust property that has been appointed out to grandson rather than part of the PET? Grandson is a DT beneficiary.

KATE HANDEL
Harrisons Solicitors LLP

2

On the facts as set out, there is a debt of £325,000 plus interest due to the trust under W’s Will, which is deductible from H’s estate-but this must be followed through to get the deduction, with assets going into the
trust and being appointed out.

Simon Northcott

3

The answer may depend on the terms of the will and the intentions of the persons concerned. Some discretionary trusts include a power to pay or apply capital to or for the benefit of a beneficiary and it is sometimes possible to interpret events has having involved the exercise of that power. If the power to appoint capital can only be exercised by deed then I agree with Simon.

Paul Davies
DWF LLP

1 Like
4

Any suggestions on what we may do if husband’s estate now has very little assets in it. Its taxable because of failed PETs. So there will not be enough to satisfy the NRBT from wife’s estate. Insolvent estate?

KATE HANDEL
Harrisons Solicitors LLP