I have been passed a matter from a different firm where there are Nil Rate Band Trusts (NRBTs) in both spouses’ Wills.
The scenario is:
The husband (1st Spouse) died in 2023 with the NRBT (worth £325,000) in his Will. There were joint assets and sole assets. The sole assets amounted to roughly £304,000. The remaining assets were jointly held so were free from IHT anyway. The firm who dealt with IHT and obtaining Grant of Probate used some of the £325,000 to avoid paying any IHT on his assets essentially treating the NRBT as if it was just a regular Nil Rate Band allowance. There was also no Deed of Appointment made.
Having never dealt with NRBT before, my understanding is that the initial trust fund of £325,000 has now been reduced leaving only £20,000 left in the trust as £304,000 was used as a Nil Rate Band allowance.
The beneficiaries to the trust are now querying their options on what to do with the NRBT. Furthermore, was the firm correct in their use of the NRBT as if it was a regular Nil Rate Band even though the Will specifically created a Trust.
The circumstances seem a little confusing as, usually, a nil rate band gift is reduced to nil if any IHT is payable in the estate so that I am unsure as to why there was a need to use some of the £325,000 to avoid paying IHT if the estate was only £304,000.
Unless the will requires that any appointment out of a trust is to be made by deed, a “mere” resolution would suffice
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I wonder if you (OP) have misunderstood some of the concepts involved here.
If the estate only contained £304,000 that did not pass to a spouse then (lifetime gifts aside) it should not have been a taxable estate. The estate has, and uses, the nil rate band irrespective of where the assets go - the fact they were passing into a NRBT is irrelevant to tax on the personal estate other than it means the spouse exemption did not apply.
You say “the initial trust fund…has now been reduced leaving only £20,000 left in the trust…”. Where has the rest gone? There is little point operating a trust (with all the costs and hassle of doing so) with only £20,000 in it.
Do you actually mean that £304,000 passes to the trust and only £20,000 of the NRB remains to be transferring to the surviving spouse?
If so, there are only really two choices :
establish, register and operate the trust properly with the £304,000 in it, keeping those sums out of the widow’s estate; or
advance/appoint all or part of it to the widow prior to the second anniversary of the death, to keep things simple and retain the transferable NRB.
If the sums have actually been paid to the widow then, as Paul says, this may well qualify for reading back under s.144. There is no statutory need for a deed.
Upon review of all the estate documentation, I can confirm that the £304,000 passes into the trust and will be dealt with in accordance to the trust provisions in the Will.
In terms of options:
If the full trust amount is appointed to the Widow does this mean that the Widow will be able to make use of the trust assets now as well as use the full £304,000 as transferable NRB? If not, how could the £304,000 be distributed now?
There are other issues that need to be considered, not just the saving of the husband’s nil rate band.
If the widow might need to go into care, passing the whole of his estate to her may mean that it is dissipated by care fees. If retained within the NRBDT, it will be ring-fenced and, if invested for growth, would also keep any increase in value out of her estate for IHT purposes.
Clearly, every situation will need to be considered on its own facts, although having said that I note that many families appear to want the “immediate(?)” benefit of securing the transferable NRB, rather than protecting the capital value from being dissipated by care fees, etc., so that monies are there for the benefit of further generations whilst still being available to support the surviving spouse’s life-style.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals