Deceased’s pre RNRB will contains a FLIT of residue in favour of his surviving spouse which becomes a relevant property trust on her death.
Deceased’s assets include his one half share in the jointly owned property (half share valued at £300,000), so my understanding is that his RNRB will be lost unless the trustees exercise their power of appointment before the death of the surviving spouse.
Should the power of appointment be exercised in favour of the children or the surviving spouse?
Can the appointment be limited to the value of the RNRB? If so, does this limit the value of the RNRB to the RNRB available as at the date of Deceased’s death?
Jobling Gowler Law Ltd
There needs to be a sufficient value of residence inherited by descendants on death. There are two ways to achieve that on the facts you have described.
The trustees could appoint out a sufficient share of the house (worth say at least £50,000) to the surviving spouse absolutely during her life. The surviving spouse will then have £350,0000 worth of house in her own name. After her death, her executors will need to exercise their discretionary powers to appoint her share of the house (or a sufficient interest to amount to £350,000) to her children (either outright, or on an interest in possession trust).
Alternatively the trustees could exercise their power of appointment during the life of the surviving spouse, so as to take effect on the death of the surviving spouse, to ensure that the half share of the house in the trust vests absolutely in the children at that date. The appointment can be revocable during the life of the surviving spouse, but not thereafter. If the half share of the house is worth less than £350,000 at the date of death, then the executors of the surviving spouse’s estate would need to do as described above in relation to a sufficient share of the house to make up the value to £350,000.
The total RNRB will be twice the RNRB at the date of death of the surviving spouse i.e. £350,000 assuming the surviving spouse survives beyond 5 April 2020. That isn’t really what the IHT legislation says, but HMRC have adopted a generous interpretation which everyone else is happy to do too. I have assumed neither estate is worth more than £2million.
I have ignored downsizing which is another topic entirely.
Clarke Willmott LLP