Advantages of Retaining property in a NRB discretionary trust

H and W have wills with discretionary NRB trusts. H has now died. The value of the assets including H’s 1/2 share of the family home (held as tenants in common) does not exceed the current NRB. We are still within 2 years of death. Apart from potential protection from care home fees is there any reason to retain the property in the NRB or should it be appointed out. (H&W have only one son, unmarried and no children of own.) My concern is that there may be administrative charges and reporting obligations to HMRC if the Trust is retained and also the RNRB may not be available on the death of W if property is held in a discretionary trust. Also if it is appointed out is it as at the date of death value as the property has increased since H’s death.

sharon edelstyn
Phoenix Legal Group

The advantages of funding an NRBDT when the first spouse dies are

  1. to shelter capital from LA assessment of surviving spouse’s assets, although
    1.1 this must not be a motive for the exercise, just a fortuitous incidental effect and
    1.2 an IIP would do just as well, and
  2. to shelter capital from IHT, not on the death of the survivor (because TNRB would do that without the extra paperwork), but on the death of the couple’s children and remoter descendants during the remainder of the trust period.

If the only child has no children and is unlikely to acquire any, then this long-term IHT mitigation is probably not useful.

If the NRBDT is felt to be useful, and if the Will contains the usual administrative powers for the executor, the gift to the DT can be satisfied by the executor imposing an equitable charge over the residue, in favour of the trustees, then assenting the residue to the spouse, subject to the charge. The sole trust asset will then be the equitable charge.

If this is done correctly, this should eliminate almost all trust admin, avoid any CGT complication, not constitute an SDLT-able event, and not prevent Residence NRB applying when the survivor dies.

Michael Cutler
Colemans Solicitors LLP

1 Like

The retention of the NRB trust also preserves the benefit of the beneficiaries in situations where the surviving spouse remarries or forms other associations which could result in the trust property being diverted from the intended beneficiaries, by one means or another.

Looking at NRB trusts solely as long term IHT mitigation (or care fee management) can miss the very issues which may have helped underpin the testator’s reasoning for choosing the flexibility of a discretionary trust.

To appoint onto a flexible life interest trust in favour of the surviving spouse, within 2 years of death, might both secure both the testator’s intentions and the ability to claim the residence NRB in due course.

Paul Saunders

A minor technical point. While there are provisions against avoiding your own care fees by putting assets into a trust (or otherwise disposing of your assets which might otherwise be used to pay the care fees), as far as I am aware, there are no provisions at all against avoiding another person’s care fees by putting assets into trust (or otherwise disposing of your assets which might otherwise be used to pay the care fees).

Thus, it is quite legitimate to create a NRBT for the purposes of avoiding any care fees that your surviving spouse might incur after your death.

Taurean Drayak
Elliot, Bond & Banbury

Not really relevant to the original query, but with reference to Michael Cutler’s post, I understood that if the NRBDT was set up with an equitable charge against the property, that might well reduce the availability of the RNRB, because it is a debt which reduces the value of the residence. I appreciate that it is not secured against the property in the same way as a legal charge, but it is linked directly to the deceased’s equitable share.

Do others agree?

Diana Smart
Gordons LLP

Thank you for your responses. I don’t think I have come across many pre-2007 Wills containing a NRBDT where the testator provided a letter of wishes. So without the benefit of the original attendance notes it is impossible to know what the intentions of the testator were when the Will was made. On a different point I came across a similar old style will where the testator had made his Wife and Nephew the beneficiaries of the NRBDT (they had no children) and the Nephew wanted the trustees of which he was one to appoint the £325,000.00 to him. There was no letter of wishes and so no idea what the Testators intentions were (but I was pretty sure it wasn’t that).

sharon edelstyn
Phoenix Legal Group