After much discussion with my client about the advantages and disadvantages of standard DT v. vulnerable beneficiary’s trust, my client has decided she’d like both in her Will. A standard DT for a cash amount up to the nil rate band (so distributions can me made more easily to other beneficiaries) and a VBT to receive the property (so we can benefit from the RNRB) and any cash residue.
It seems to me that we are over complicating matters by having the two trusts. Or is this the only way we can achieve the desired result?
Your feedback would me much appreciated thank you.
A little more information would be helpful on this question.
Is your client married and is there likely to be an inheritance tax liability?
Who may be the vulnerable person being considered?.
The discretionary Trust would give the Trustees wide powers and could also include authority for the Trustees to accept and IOU from a surviving spouse who wishes to retain the nil rate band sum themselves. The survivor would undertake to repay the Trustees from their estate on death, but it would be necessary to include such wording.
It very much depends on the financial position and what the aim is?
I am not sure I understand the benefit of a general discretionary Trust if the vulnerable B is to be the sole / main beneficiary of the Trust? For tax purposes (IHT RNRB/tax Trust regime), a vulnerable beneficiary Trust would seem beneficial.
Many thanks for your feedback
Just to clarify my client is widowed and hubby’s full nil rate band allowances available to her.
The vulnerable beneficiary is her daughter with learning difficulties. Client has a son who is lead trustee. He has been well provided for during client’s lifetime having received substantial gifts from her over seven years ago.
So IHT not an issue on client’s death but if all went into the VBT then of course it would be taxed on daughter’s death so NRBDT is useful to reduce the amount she would be taxed on at death. The idea would be to keep the value of the NRBDT below one standard NRB so that ongoing IHT charges don’t apply.
Client likes the idea of the NRBDT so there is a fund which could be more generous with other beneficiaries mainly her son.
She wants the VBT though to benefit from residence NRB and to provide more securely for her daughter.
So I think it is a good compromise but it’s always good to have feedback from you lovely people!