Hi in the situation as follows - H&W had mirror Wills each containing a NRB Discretionary Trust, the Wills were prepared and signed in 2015 but state ‘I give the untransferable nil rate sum to the trustees’ this has confused me as by the time the Will was drafted the NRB was transferable or perhaps I have misunderstood the meaning of this wording? Definitions states ‘Nil Rate Sum means the maximum amount of cash I can give on the terms of the Nil Rate Fund without incurring any liability to inheritance tax on my death but subject to - the nil rate sume shall be nil IHT has been abolished at the time of my death, I am not married at the time of my death or the amount of the nil rate sum would otherwise be less than £5000’.
H passed away 6 years ago now and a Grant was obtained by the family but the NRB Trust was completely ignored and all passed to the surviving W. W has now passed away this year and I would appreciate your thoughts and input if anyone has dealt with similiar scenarios:
What are the best options available now for addressing the NRB Trust in Hs Will which was ignored on his death and I assume that something will have to be done to rectify the situation even though the estate was dealt with several years ago?
Now dealing with Ws Will which also has the clause discussed above would the fact that H had pre-deceased mean that the NRB would not come into effect in Ws Will at all? There is no further definition in the Will other than it says the nil rate sum will be nil if I am not married at the time of my death - in this context would it be that W is no longer legally married now being a widow and would everyone agree that this would apply in this scenario and so then the nil rate sum is nil and there is no discretionary nrb trust to be established under Ws Will in any event?
Finally and sorry for the long post, but the fact that it has been described as the ‘untransferable nil rate band’ in a Will drafted in 2015 - would that have any impact re Hs Will - as in the NRB was not untransferable in 2015 and so could you go as far as to say there was no NRB Trust to be set up even under Hs Will as the NRB was transferable at that time?
I think I have made myself more confused the more I have played this one over in my mind so would be grateful for your input.
All too familar a scenario to practitioners and HMRC.
From other such wills I have seen I expect the “Untransferable” to be a mere label, a defined term. It is likely that the drafters had no expectation of the NRB becoming transferable or overlooked it if at the time of execution it was state of the art knowledge (in which case it might be actionable). Its meaning at the date of the execution was unfathomable from any Chancery armchair. Transferability was an impossibility.
While a will speaks from death the meaning of an ordinary word might conceivably be given its after-acquired different meaning at the date of death but I doubt it, not without evidence it had become the testator’s own understanding. Although an unexpected meaning has been given to such a word (upon evidence) in the strange sense given to it by the testator, that cannot be the case with a defined term. He could have called it “the Gobbledegook Nil Rate Sum” and the definition would have prevailed. Mental capacity might have come into question.
The NRB trust on H’s death should not be ignored. The motto is: if it starts bad, it gets worse". The usual history is that assets which might have gone into the trusts have already passed to beneficiaries. A document is required formally recording that those transfers occurred and adopting them as if exercised by the trustees at the time per their discretionary powers.
As the court will always supply a trustee, if the original trustees are not available you might have to go through the formal steps for appointing replacements. Those in receipt have presumably acted all along as if they owned the assets so the only reporting tax requirements will be for the trustees. Often there will have been no tax payable. One IHT consequence is that there is no TRNB or TRNRB unless W was married before.
The exercise may well turn out to be more expensive in costs than if done properly at an earlier time but “there you have it” as Counsel says after losing.
The corresponding clause in W’s will is surely inoperative as she was not in fact married at her death if still a widow who had not re-married. (Wills containing this clause often specifically equate marriage with civil partnership so a trap on given facts). Any opinions to the contrary that a marriage endures in law beyond the grave are, as I was often told at school, simply: “Wrong,wrong,wrongwrongwrong…,WRONG!!!”.
Thank you Jack for your detailed reply, which is really useful. Yes I just struggled to understand why a Will drafted by a firm in 2015 would refer to the NRB as untransferable when the transferable NRB was introduced back in 2007, maybe use of an old precedent. I understand from your reply that the fact that they used the word ‘untransferable’ would not be fatal to the clause in any event as it would have been understood by the solicitor advising and so therefore we would assume also the testator that the NRB was transferable in 2015. I hope I have understood that correctly.
1 Whether what was put into the Will did what the testator wished. Here there may be a doubt that the testator would have wanted the NRB DT if he had been advised that such a device was no longer necessary. If he was not so advised, it looks like negligence to me. There is a suspicion that he might not have known about or understood the change in the law.
Such trusts are not now totally useless e.g. where the testator has children from another marriage, to capture APR or BPR assets, avoiding NRB taper, care fees planning, possible loss of capacity or likely remarriage of surviving spouse, etc etc. There is also “wait and see” for 2 years with an eye on s144 (if the draftsman knew about that!). Even so there was a duty to consider if any was relevant.
So the will advice may be actionable if there is proof of that advice or that it was not given and the target is worth suing. As it will cost to put it right (with some contributory negligence perhaps by the executors) there is some detriment. The case must be that the testator was not advised that it might not be necessary and if so advised would not have included it. A lay person has a right that these issues should be raised.
2 Unless the Will can be rectified under s20 AJA 1982 and my construction of the clause (that the label does not matter) the DT has effect. The Court would take proper construction first and the case for rectification would more or less cover the ground which would allow an action under 1 (even if that was not undertaken). You can write a Larke v Nugus letter and obtain disclosure if proceedings are issued, which the target will presumably understand. For out of time applications for rectification see Re Kelly (Deceased) [2020] EWHC 245 (Ch).
One or two further thoughts on this, which may or may not be relevant in your case. The term “untransferable nil rate band” is used in James Kessler’s “Drafting Trusts and Will Trusts”, and the idea generally is to create a nil rate band discretionary trust on the first death of a couple, where one or both of the couple has been widowed before. In that case, the one who has been widowed before already potentially has two nil rate bands, so cannot make use of a third, and the nil rate band of the one who has now died would be “untransferable”.
The “Untransferable Nil Rate Sum”, in Mr Kessler’s Will 5 14th ed, is just a label. It is a defined term per clause 4. The use of that term without that or another definition of it has no technical meaning and what a Court would make of it as ordinary words is pure speculation, but not auguring well. And the purpose of the clause is precisely to make the sum in question non-transferable to the surviving spouse whereas otherwise it would be. So as specifically drafted it does not operate if the testator is not married at the time of his death, there then being no spouse from whom to prevent its transfer, so its operation would be a nuisance at least, if not worse, and allowing the other provisions of the Will to take effect.