I have a married couple who currently have assets around £1m and will likely inherit from parents in the future. They have two minor children, one of whom is disabled. They would like to leave their entire estate to the children in their Will but at this stage do not know what long term needs their disabled child will have. As I understand it, if they put the money in a straight forward discretionary trust their estate will not have the benefit of the RNRB. If they have a trust for a disabled beneficiary, that will benefit from the RNRB. However, can I include the other son as a potential beneficiary of the disabled person trust? Any guidance on the best way to handle this would be much appreciated.
The problem you allude to is that if the estate is left in trust for a child it may not meet the requirement to be ‘closely inherited’. There are some exceptions - see s 8J IHTA. A disabled person’s trust meets the requirement, but so does an immediate post death interest trust, a bereaved minor’s trust or an 18-25 trust.
You could make the second child a beneficiary of the disabled person’s trust but what they are allowed to receive during the life of the disabled beneficiary would need to be limited. See s. 89 IHTA. It is probably better to create a separate trust for the other child which qualifies either as an immediate post death interest trust, a bereaved minors trust, or an 18-25 trust.
Although a discretionary trust won’t be a qualifying sort of trust for the purpose of the ‘closely inherited’ rule, bear in mind that there is the facility under s. 144 IHTA to ‘rewrite’ the trusts post death (assuming the trustees have the necessary overriding powers) to enable the trust to qualify. In many cases that is a sensible option.
There is a potential trap to be aware of when a deceased spouse leaves the matrimonial home (or his share of it) in trust for his surviving spouse, with continuing trusts then taking effect on the death of the surviving spouse. The share of the property held in the trust must vest absolutely on the death of the surviving spouse in order for it to be closely inherited - see s. 8J(5) IHTA.