We are looking at IHT/Will planning for a new client who is a widow. She was the residuary beneficiary of her late husband’s estate who died in April 2016, there was a NRB Discretionary Trust with our client, her children and issue etc who at the time of death were minors. The trustees were the same as the executors, being our client and a solicitor.
Unlike some of the forums on similar topics here, the trust was administered correctly and assets were transferred to the trustees during the administration of the estate.
According to our client’s files they wanted to do a deed of variation to appoint the assets in the NRB trust to our client absolutely, but seemingly left it too late in the day to get court approval for the minor beneficiaries. The decision instead was made to appoint the shares absolutely to our client but the deed of appointment was signed after the 2 year period in May 2018.
According to emails from the client, there was a brief suggestion to her from the preparing solicitors that the appointment of the NRB trust would be ‘neutral’ from an IHT perspective for two reasons, the first being that the exit charge would carry an effective rate of 0% which I agree with. But the second reason suggested was that the appointment was to a spouse, which I am not sure I entirely follow given that this is an appointment from a discretionary trust (and outside of the 2 year window). But given that the first reason stands, this doesn’t strike me as an issue.
My main concern is that thought was not given to the TNRB of the husband given that the s144 2 year window was not adhered to and therefore the appointment effectively was not written back to the Will securing the IHT advantages.
It seems to me that there is almost a double IHT whammy here in terms of both the NRB trust being wound up and the value added to our client’s estate, as well as the husband’s TNRB not being available upon her death.
Apologies if this has been answered in other forums and I have not been adept enough to find it, but most of the topics in this area seem to be surrounding NRB trusts that were not properly administered on the first death.
I agree that no spouse exemption would apply on the appointment to the spouse after the 2 year period, as s.144 IHTA 1984 would not be engaged.
Furthermore, as s.144 was not engaged, the appointment cannot be read back to the date of death, so that the late husband’s NRB has been used and, accordingly, is not available to the widow’s estate on her eventual death.
Had the client been made aware of s.144 and the 2 year requirement?
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I am afraid you are right. The DT has prevented the transfer of general and residence NRBs because s144 did not operate, at least on the face of it. Was the appointment out required to be by deed? If not you may be able to argue that the trustees had already made a valid decision to appoint, though if land was involved it would need to have been made in writing. Possibly instructions were given in writing to the draftsperson. It is a unilateral document so the widow is not a requisite party. But I did spend a lot of time in the Stamp Duty era arguing successfully that all manner of documents were not conveyances or transfers of property.
Another avenue is to argue mistake. Somebody plainly made one and it may even be actionable. Whether it is operative in equity is a difficult fact-dependent question as the case law demonstrates. The substantive effect of the document in equity was entirely as intended but its anticipated result for IHT under s144 was not. The modern view is that a mistake as to tax effect is in scope but within what remains nonetheless a discretionary remedy. Although the UT has discovered (by divine revelation?) that it can make decisions about tax consequences based on its own prediction of the availability of equitable remedies, HMRC still refuse to accept mistake, rectification, undue influence etc until some competent court or tribunal has pronounced on it. (And possibly not even then!).
If the facts are presented to HMRC and are favourable, e.g. the delay is short and there are mitigating circumstances for it, they might be sympathetic. But stony-heartedness is their usual approach and these short time limits are very well-known or should be to advisers (though not to the Probate Service, who don’t care anyway). They may well see it as a matter between the taxpayer and her advisers (insurers!). The latter prima facie should have acted in time to arrange for the trustees to sign in time (and warned of the dire consequences of not doing so) and are on the hook if they did not; but off it if the delay was that of the trustees. Missing deadlines is a curse of professional practice and requires some standing operating practice measures to be in place (says an insurer, while retaining the premiums). Judges in their ivory towers apparently, just like clients, consider that the processing of instructions should be instantaneous, even on what for themselves is a “dies non” (a large portion of the calendar): see White v Jones.