Options with a Dsicretionary Trust (first death)

H & W have standard NRBDT’s in their Wills and each have estates circa £450,000. There is one severely disabled child of the marriage who is in care which is funded by the NHS. They wish to preserve capital to make sure there is always a fund available to meet the disabled child’s care needs should these or funding arrangements change.

H has died. W is a sprightly 90 with a very good level of income. The initial intention was to “loan” the NRB to W. However for simplicity would it not be better to terminate the NRBDT in H’s Will in favour of W and for W to make a new WIll leaving her entire estate on a Discretionary Trust? There would be a full transferrable allowance plus some residence allowance from husband.

I cannot see the advantage in ultimately retaining the two Trusts from both H & W’s Wills.

Any thoughts to the contrary forum members?

Justin Wallace
Brewer Harding & Rowe

Nursing home protection may suggest keeping the trust.

Simon Northcott

By “standard NRBTs” I take it to mean the child’s interest will not be a disabled person’s interest (DPI), so that the trust fund will be within the relevant property regime.

Whilst on W’s death her husband’s transferable nil rate band will be available to reduce the IHT on her death, it does not carry through to the periodic and exit charges.

The residence nil rate band will not be available if the gift is into a discretionary trust, regardless of who the objects of that trust happen to be.

Leaving aside any allowance for capital growth before the first 10-yearly charge, IHT of £19,500 will be payable at that time. How does this compare to the expected costs of running the husband’s NRB Trust for that period?

In making the comparison, you will also need to factor in the need to register the trust and, if necessary, the cost of acquiring (and maintaining?) a legal entity identifier.

If W has a good level of income, I would be inclined to set up the trust as in addition to the potential savings on running costs/IHT, it would reduce the build-up of income within W’s estate and, as Simon Northcott says, would also ring-fence value from potential care fees should W need to go into a home.

Paul Saunders

My thinking was in the absence of the need to protect capital for care fee purposes (which there isn’t a real need for in this case), then an appointment out to W would be beneficial given that this preserves the residential allowance. I had not factored in that the increased allowance on W’s death would not carry forward for the purposes of the 10 yearly charge - which could be relevant given the age of the daughter. Many thanks
Justin Wallace
Brewer Harding & Rowe