Love them or loathe them a huge number of discretionary and IIP settlements have been sold by solicitors and will writers as asset protection trusts. Do forum members agree that where the clients estate exceed the NRB and the settlors main residence is transferred to the trust the new RNRB will be lost as the discretionary nature will fall foul of the linear descendants requirement? Resulting in IHT being paid on an estate that would otherwise have not been paid.
Roland Borriello
Northwood Banks &Co
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Self-settling a property whose value exceeds the Nil Rate Band is a bad idea anyway and yes, I consider that if the property ends up in a lifetime trust (which does not legally form part of the deceased’s estate) then the RNRB will be lost when the property passes to the remainderman/men, as it is not a Qualifying Residential Interest forming part of the deceased’s estate which is ‘closely inherited’. Furthermore, I do not consider it is not a gift with reservation of the type which still benefits from the RNRB (see the new s8J Inheritance Tax Act 1984).
Jill MacMahon
Thackray Williams LLP
What is the situation regarding testamentary discretionary trusts? Presumably one could appoint out within two years?
Iain Cameron
Star Legal
Yes, the view is that this is something which would be within the qualifying criteria for use of the RNRB, as would an appropriate Deed of Variation under Inheritance Tax Act 1984 84.
Jill MacMahon
Thackray Williams LLP
Picking up on Jill’s point, if husband leaves wife a life interest and remainder to a discretionary trust and the funds are appointed out of the discretionary trust within 2 years of wife’s death to their lineal descendants, will the RNRB be available?
Nicola Waldman
Hodge Jones & Allen
No.
Simon Northcott
A long shot, but what are thoughts on a retrospective Trustee minute / note to confirm that the beneficiary of the trust (the donor) has a qualifying interest in the trust as the donor continues to live in the property? It confirms what is the reality i.e. purported discretionary trust set up but with GROB as continued right to live / income from the property.
Then this would avoid RPT regime and allow RNRB to be claimed? Tenuous… but what are people’s thoughts / experiences in this?
I have come across a few lifetime discretionary trusts set up by some will-writing companies. The Trust has Fund A and Fund B. The main residence is transferred to the Trust by the settlor, who will reside in the property
Fund A holds value up to Nil Rate Band to mitigate entry charges. The balance of the value of Fund B is held as a Bare Trust.
This will be a GROB and, therefore, the main residence will form part of the Estate chargeable to IHT. This trust was set up to protect the assets from the normal external factors and is not an IHT planning arrangement
At the time of setting up the Trust, a Trutee’s resolution was prepared with the Trust period varied, and it states that the Trust shall end a day immediately prior to the death of the settlor. My understanding is that with this variation, the property belongs to the settlor and not the Trust, and therefore the executors can claim residence nil rate band.
What is the opinion of the forum readers of the above set-up
Thank you
The cynic in me says that it sounds like a rather complicated way of not achieving very much.
More seriously, I’m not aware of any precedent for trust interests ending retrospectively. Absent some precedent, claiming RNRB must be highly speculative at best and so it may only work until the day HMRC calls in the papers and takes the point (also risking penalties for the lucky winner).
What happens to Fund A when the trust is terminated?
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
It varies- in some Wills, it goes to the residue to be shared equally by various family members or into a discretionary Will trust for the residue
I appreciate this was some time ago. However, on reading this thread, am I correct in my understanding that the new section 8J IHTA 1984 means that a GROB that arises from a lifetime settlement will not receive the benefit of the RNRB?
My understanding was the RNRB does apply to GROBs, but not PETs. Is my reading of the legislation correct that the RNRB applies to GROBS, but not those that arise from lifetime settlements of property (s.8J) - and that the downsizing provision can apply if the GROB ended prior to death and after July 2015?
If X settled his home in a lifetime settlement in which X retained a life interest (ie a reservation of benefit arises) no RNRB applies on X’s death even if under the trust the remainderman was, for example, his son. Similarly, if If the lifetime settlement was a discretionary trust with X as one of the beneficiaries [IHTA 1984 s 8J(6)].
Where X gifts his home to his daughter, Y, but continues to occupy the home (ie reservation of benefit) then on X’s death Y inherits and an RNRB applies [IHTA 1984 s 8J(6)].
If. X gave his home to his daughter, Y, but continues to live in it but at a later date the reservation of benefit ceases (prior to X’s death) on X’s death he possessed no qualifying residential interest [IHTA 1984 s 8J(6) not in point]. However, under the Downsizing provisions, an RNRB would be available on X’s death if other assets in X’s estate on death are “closely inherited”.
Malcolm Finney
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