I am dealing with a situation where a recently deceased person (D) had created a lifetime trust, into which he transferred his home. Under the terms of the trust he retained a life interest, and indeed he continued occupying the property until just before his death. Following his death, the trust has discretionary terms, with his son (M) and grandchildren named as the only potential beneficiaries. He was registered blind and in receipt of disability benefits since prior to creation of the trust (which was established in 2017 by a Will writing company), so the trust meets the requirements for a disabled person’s interest, at least until his death, at which point I think it became a Relevant Property Trust. He died recently, so we are within 2 years of his death.
The value of the trust property is believed to be slightly under the nil rate band, but because he had a life interest and it was a disabled person’s interest, I believe that the trust property aggregates with his estate for IHT purposes. Even if this wasn’t the case, it would likely be a GROB, so the value of the trust property would, I think, still be within his estate for IHT purposes.
D’s free estate on death was around £80,000. He was divorced so only has available one nil rate band. Adding the trust property to his free estate, the value exceeds the nil rate band, so we would like, if possible, to claim the Residence Nil Rate Band, in order to avoid an IHT liability.
I had considered initially whether an appointment of the trust property out to his son absolutely within 2 years could be read back under S.144 or S.142 IHTA 1984, but neither seems possible in this situation (because 144 requires the ‘settlement’ to be established by D’s Will (which it isn’t in this case), and 142 would not allow reading back in this situation, because the inclusion of the trust property in D’s estate is only by virtue of it being a disabled person’s trust, and S.49 applying, but that is disallowed under S.142).
I was intrigued on re-reading S.8H and S.8J of the IHTA (which relate to the RNRB), whether it would be possible in any event to claim the RNRB in this situation, because it seemed to me that one could argue that D’s life interest would be a “qualifying residential interest” (See 8H), and that under 8J M has “inherited” as the property is now held on trust “for his benefit” (i.e. discretionary trust with M named as a beneficiary)? I appreciate this may be stretching and I’m not sure how these sections would be interpreted by HMRC. Obviously M, being D’s son, meets the requirement for the property to be closely inherited.
This is the first time i have encountered this particular situation in practice. I wonder if anyone has come across this before and knows whether there is any way the RNRB can be secured in this situation?
Thanks in advance to anyone who is able to help in any way!
Joshua Eva - Harris & Harris solicitors, Somerset