I am instructed to rectify a problem that has arisen with an estate which includes a nil rate band discretionary trust from 2014 and was hoping you would be able to assist. In short, the Will trust was never dealt with and the Executor ignored it meaning he has created an inheritance tax problem for himself to the order of around £120,000 which could have been entirely negated has he sought advice… The summary of the matter is as below:
- Father died in 2014 leaving nil rate band discretionary trust in Will and residue to wife – the trust says that his wife (now deceased), children ((one of which survived the deceased father but predeceased mother) leaving only one surviving child who is also executor of both wills) and grandchildren can benefit from the trust
- The Executor did not realise there was a NRB Disc Trust in the Will. Accordingly, he did not declare his father’s 50% share in the property and never updated the title to the property (which is still in mother (deceased) and father (deceased)’s names as tenants in common). He declared the value of his father’s estate to be £62,000 as he disregarded the value of the property in 2014 when his father died.
- Sister died in 2016 and Mother then died in 2017 and mother and father had mirror Wills. £30,000 is given to two grandchildren and the remainder to my client. The estate value submitted was £725,000 on mother’s death and my client dealt with the estate as if the Disc trust was never drafted in his father’s Will. The value of mother’s estate is incorrect as it includes a 50% value in a property which the mother does not own - her estate value should be:
a. Property 50% value - £250,000
b. Remainder £250,000 – minus £62,000 which originally belonged to the father which we are (hoping?) can form part of the deed of appointment to pass to the son.
My thoughts are as follows:
- Draft deed of appointment gifting executor / son the father’s share in the property (now valued at £250,000 but previously valued at £150,000) and the father’s cash (£62,000)
- If so, my understanding is the result is:
a. Father’s estate passes to son (value at today’s date is £312,000 being £250,000 plus £62,000) and value at father’s DoD was £150,000 plus £62,000 leaving £113,000 TNRB to be transferred to mother;
b. I believe mother’s estate is actually valued at £413,000 (£750,000 minus £250,000 (house), minus £62,000 (cash which she wrongly received))
c. Eradicating £120,000 in Inheritance Tax to nil
Does everyone agree this is the correct and right approach?
If so, some additional elements to consider are (1) tax returns (2) CGT payable on increase in value of property between 2014 and sale (3) Is there any foreseeable issue of reclaiming back the £62,000 which went to mother considering no one knew of the trust and the trustee give this money accidentally(?) and lastly (4) I believe we take the current value of the property for the purpose of the Deed of appointment (but probate values for the purpose of working out the IHT). In which case the unused TNRB can be transferred to mother of unused nil rate band and the figures stack up to nullify the tax?
I’d appreciate it if someone can tell me if I have worked all of this out correctly?