I am preparing Wills for husband and wife. H was widowed and I am structuring the Will to make use of the NRB of his late spouse in the event that he dies before his current wife, such that their combined estate would benefit from 3 x NRB. However, I understand that 3 x RNRB can also be claimed, but I’m unsure how we would do this. H wants to grant W the right to live in the property for the remainder of her lifetime, and I was going to include a Life Interest Trust within Hs Will to this effect. However, this obviously means that no part of the property would be closely inherited on Hs death. And yet we don’t want to grant an outright interest in the property to Hs children, as this could jeopardise Ws right of occupation.
Has anyone else come across this this scenario? Does anyone have any suggestions on how best to deal with it?
I’d be interested if anyone has any thoughts about this. My understanding though is that the only way to pick up a third RNRB if H dies first in your example is to have part of the property (i.e. at least the part of it which represents his first wife’s TRNRB) closely inherited at his death.
You’d have a similar problem if W dies first - if you want H to claim his RNRB and the TRNRB from his first wife on his later death, and also claim W’s RNRB somewhere, then W must leave part of the property closely inherited at the first death.
I think you might be able to preserve the spouse’s right to occupy and secure the RNRB by using a Life Interest Trust for the descendants limited to the value of the RNRB, with the remainder passing under the same Life Interest Trust for the surviving spouse.
This should means leaving a share of the property (up to the RNRB you need to claim) to a Life Interest Trust in favour of the lineal descendants. As it should qualify as an IPDI for them, that portion is “closely inherited” and I think the RNRB can be claimed. The remainder of the property can then pass into a Life Interest Trust for the surviving spouse, giving them the right to live in the property for life.
To try to deal with potential problems, such as the descendants trying to interfere with the spouse’s occupation, you include wide overriding powers. These could allow the trustees to appoint or resettle the property into a different trust (for example, a Life Interest Trust solely for the spouse) if the situation requires it.
As for CGT, I think I remember a training course a few years ago that said if a beneficiary with a life interest occupies the trust property as their main residence, even if there are other beneficiaries as well, the trustees might be able to claim Principal Private Residence relief on whole of the trust’s share, but as this is from memory so may not be right!
If W dies first she will have to utilise both her nil rate bands - so IPDI to her children in her RNRB and a legacy to a NRBDT (with very robust letter of wishes giving H right to live in the property etc). Her Will should also give an IPDI to H in small share of the property (say 5% or 10%) to ensure PRR can be claimed on any surplus property value passing to the NRBDT.
Then when H dies he has his own nil rate bands and those of his first wife.
If H dies first then he will need to leave an IPDI in both his RNRB and the TRNRB from his first wife - so £350K on current figures will have to be settled on IPDI for children. This is because you can’t claim a TRNRB without also claiming a RNRB. H’s Will should then settle 2 x NRB to a Discretionary Trust - his NRB and TNRB from first wife (with very robust letter of wishes giving W right to live in the property etc). This may cover the whole of his estate. Very important therefore to leave a small percentage to W on IPDI too - say a 5% or 10% share of his half - to ensure PRR can be claimed on any surplus property value passing to the NRBDT.
When wife dies she just has her own allowances.
You need to advise on CGT implications given that the children won’t be living at the property with their surviving stepmum/dad. Is the CGT liability payable by the children on second death worth the IHT saving? Probably but you still need to advise.
Definitely include a clause in the Will authorising termination of IPDI should any of the children start to act up.
I’d also suggest a strongly worded letter of wishes stating that the inclusion of the children’s IPDI is a technical provison to claim the RNRB allowances only and it is not intended to give the children any occupation rights.