LIfetime Settlement and TNRB

Trusts Discussion
1

I have an elderly client that transferred her property into a flexible life interest settlement 2 years ago. My client was told to do this as the “best way to avoid paying care home fees”.

The property is now being sold with the intention that my client goes and lives with family subject to some renovations being carried out to her property.

The family fully accept that creation of the settlement to avoid paying care home fees is likely to fall foul of the deprivation of capital rules. There are no other reasons to keep the settlement. The intention is to undo the settlement pay a small portion of monies to help with property renovations and release the balance of funds back to the settlor.

The settlor was predeceased by her husband. He did not have a Will but they owned everything jointly including a property. There are no IHT issues.

The sale of the trust property is likely to complete at a figure just over £325,000.

Do forum members agree that as the settlor has the benefit of her husband’s nil rate band that there is no Tax to pay on termination of the Settlement and as such no need to file an IHT100?

Can forum members think of any other positive reasons to retain a settlement?

Justin Wallace
Brewer Harding & Rowe

2

The transfer into trust 2 years ago would appear to have been a chargeable lifetime transfer and the trust will be a relevant property trust. However, if the settlement would have fallen within s.89A IHTA 1984 (Self-settlement by person expected to fall within the definition of “disabled person”), the settlement and return of the assets to the settlor should have no IHT implications.

With regard to the client’s late husband’s NRB, this is only available on her death and does not affect any lifetime IHT payable.

Paul Saunders

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