Nil Rate Band Trust re-settled onto life interest for wife

Trusts Discussion
1

Good morning,

We are dealing with an estate where husband (H) left a discretionary NRB trust within his Will. H died less than 2 years ago. Due to the level of assets in his estate, the trust will consist of 50% of the property (£200k) and around £50k in cash. There are no other assets to satisfy the £325k in full.

The Trustees are looking to re-settle the 50% share of H’s property onto a life interest trust for wife, so that CGT issues are avoided on sale of the house and also so that W then has a higher % of H’s TNRB (as two years since date of death has not yet passed).

Provided the remainder beneficiaries of the life interest are H’s children (also wife’s children), then we assume on wife’s death she can claim the full RNRB and TRNRB?

The Trustees are going to loan the cash to wife from the discretionary trust on an index-linked basis.

Are we missing anything in terms of re-settling the property onto a life interest trust, rather than keeping it in the discretionary trust that the Trustees should be considering? Are we correct about the availability of the RNRB and TRNRB?

Thank you

2

If the £50k will remain on discretionary trusts then that value will be deducted from H’s nil rate band and will reduce the TNRB proportionately (by circa 15%).

3

Thank you Andrew for your reply and yes agreed. This shouldn’t cause too much of a problem as we would still have the larger % of TNRB to transfer to wife if we carve out the property into a life interest trust (another option to clients is to include £50k in the life interest trust as well and just re-settle the whole of the nil rate band discretionary trust onto a life interest trust for wife). I think my main concern is the availability of the RNRB and TRNB but if the remaindermen of the life interest trust are the children (who are children of both H&W) then I think this would be fine?