A couple made Wills in 2003 incorporating a gift of nil-rate band legacy on discretionary trusts.
The husband died in August 2016 and his Estate was left un-administered. The husband’s Estate included his share in the property (held as joint tenants) and some shares in his sole name (approx. value of £1,000). Dividends have accrued on the husband’s shares - approx. £350. These shares are still in the husband’s name.
The property was sold in January 2020 and the proceeds transferred to the wife’s sole bank account. The wife died in May 2020.
Are the husband’s shares and dividends effectively assets of the husband’s trust and owned by the trustees of the same?
Can the wife’s estate claim the unused transferable nil rate band (being the nil rate band less the value of the shares and the dividends)?
The final question is how do we formally wind up the discretionary trust?
Yes they appear to be - if not absorbed by estate liabilities or expenses
Yes, the unused transferable nil rate band can be transferred (it’s proportional to used/unused so not just a deduction if the nil rate band ever increases)
Given the values, I suspect the trustees can just advance the capital and distribute the income to one or more beneficiaries. Ideally documented by a simple written resolution but there are no formal requirements unless the will requires them. No IHT charge or return as the values are too small. I suspect there are no income tax requirements for £350 but you will need to check that.
Presumably the dividends have been received by H’s executors and thus subject to income tax on their part until the shares are assented to the trustees.
If the estate remains unadministered, then the nil rate band discretionary trust has yet to be constituted.
As the estate is unadministered, it is likely the trustees of the NRB trust have turned their minds to the exercise of their powers. On that basis, until such time as the trust has been fully constituted, there can be no certainty that the widow has any entitlement to any of her late husband’s estate.
Even if the trustees exercise their discretion now to wind up the trust, this will not restore the husband’s nil rate band, enabling the widow’s estate to claim the transferable NRB in full, as the 2 year time limit for writing back for IHT under s.144 IHTA 1984 has already expired.
The question then becomes: what is there in the husband’s estate to satisfy the NRB trust?
Does any part of the matrimonial home pass under his will? It is said to be held with the wife as “joint tenants”. If that is true, then both legal and beneficial titles will have passed to the surviving co-owner by survivorship. If, however, the property was held by them as tenants in common, then his share will have passed into his estate, and the widow’s estate will need to account to the trustees for the husband’s share thereof, to the extent required to constitute the trust in full (including interest on the unpaid legacy).
The answers to the questions posed will be dependent upon whether or not the property was held as joint tenants or as tenants in common and, if the later, the amount realised on sale in respect of the husband’s share.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Hannah you mention that the property was held as joint tenants. I presume that it was held as tenants in common since otherwise the deceased share would not form part of his estate which could be disposed of by his Will and therefore would not be available for inclusion in the NRP trust. However you also say that the property has been sold and the proceeds paid to the surviving spouse which would indicate that it was held as beneficial joint tenants! If that is the case then only the shares would be available to go into the trust and as has been said, the matter can be brought to an end by the executors/trustees executing a deed of appointment In favour of the surviving spouse.
Just in addition to the above comments, it is also important to check the wording of the NRBDT as some poorly worded ones can mean that a debt of the the amount up to the total NRB is owed to H’s Estate and therefore HMRC sometimes takes issue with this when trying to carry across to survivor’s Estate.