NRB Discretionary Trust and Promissory Note

I am dealing with the following:
Mrs died leaving a NRB Trust in her Will. The trust consisted of monies and a half share of a property. The surviving spouse, the primary beneficiary, sold the house for a flat which became a trust asset and was given monies from the trust with a promise to pay the monies back. The Trustees later resolved to lower the value of the promissory note.
Could the promissory note debt be written off? The Trustees are agreeable to this. The Trustees are the remaindermen.

If the rule in Saunders v. Vautier applies, there is no reason the remaindermen (rather than the trustees) cannot assign the benefit of the promissory note to the life tenant. I believe HMRC required that the forgiveness of any debt must be doe by deed to be valid.

If the trustees have power to advance capital to the life tenant, they could exercise the power of advancement. If Saunders v. Vautier does not apply, this would be the only effective route by which the promissory note could safely be forgiven/written off.

There should be no IHT consequences whichever route is adopted.

Paul Saunders FCIB TEP

Independent Trust Consultant

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