Wife is deceased. Wife’s will includes a NRBDT funded by an undertaking by husband to pay the index-linked nil rate sum to the trustees on demand. Husband now deceased. Beneficiaries of W’s trust are W’s 3 children and H’s 2 children. Beneficiaries of H’s estate are H’s children. It is accepted that H wanted W’s trust to be divided equally between all the children. NRS was £244k but with indexation it’s now almost £500k. H’s estate will be taxable if debt by H can’t be deducted. I believe the best approach is as follows but would welcome any comments:
Trustees resolve (in trustee minutes) to waive the indexation (so no argument that index-element is interest and therefore subject to tax).
Deed of waiver of indexation - can anyone recommend a precedent?
Trustees call in undertaking - does this have to be by deed? The funds are currently inaccessible as a Grant will be needed by the executor of H’s estate for the bank account where they are held (following sale of H’s property shortly before he died) so cannot be paid yet. Could HMRC query this in relation to the IHT400 for H’s estate? Once the funds are accessible, do they have to be paid to an account in the name of the trustees or can the executor distribute on behalf of the trustees?
Deed of appointment to distribute the money to beneficiaries of trust (taking into account that 2 of the beneficiaries will benefit from H’s estate so the split will not be even)
Form IHT100 to HMRC
Have I missed anything obvious, either in terms of law or procedure?
1 Is H’s undertaking legally enforceable and given for consideration: IHTM2831-2?
2 Is the waiver a chargeable event under ss3(3), 2(3), and s65(1)(b) IHTA? Ironically this will not be so if the indexation IS equivalent to interest and only falls due as a bullet repayment on a future date? If so the waiver just prevents the trust fund increasing as opposed to reducing it. HMRC are duplicitous enough to reverse their apparent settled position to the contrary!
3 The waiver must be by deed:IHTM19110
4 do the trustees have power as trustees of the NRBDT to waive and if so is it a proper exercise of the power to do so? If not are all the potential beneficiaries of the trust adults and ascertained and can authorise the action? If not are the trustees prepared to act on an indemnity from those beneficiaries who are, under s62 TA1925? Confirmation in writing from all persons who can benefit under the wills of H and W who are adults and the respective PRs that they agree with the proposed course of action and accept the consequences, fiscal and otherwise, which may follow and have been advised to them as likely on the best and worst views would be highly desirable.
I doubt the undertaking has to be called in by deed. Refer back to the original documentation.
The liability might not be deductible if it is not discharged in money or monies worth (s 175A IHTA84). The best way to show the requirement is met is if a transfer of money is made to the trustees in due course.