Husband died 4 years ago creating a NRBDT in his Will. The family deal themselves and just treated the surviving wife as the beneficiary and transferred the estate to her. They have now realised there was a trust in husband’s Will and have asked that I prepare the documentation to formally terminate the Trust to correct the position.
Leaving aside the taxation issues of terminating the husband’s NRBDT, I am slightly concerned about the IHT position in the longer term. Wife will benefit from her NRB and the RNRB but will her estate also benefit from her late husband’s RNRB?
I agree with Natalie about the Transferable RNRB, but I am concerned about the Transferable NRB.
If H left his NRB to a DT, and it is now being wound up outside the two-year period for s.144 read-back, W’s estate will not become entitled to Transferable NRB - H’s NRB will be lost altogether.
It is stated that H’s will made a gift of the NRB to a DT, residue to W, but the whole estate was mistakenly transferred to W. If no other action was taken, that means that W owes the NRB to the DT (or holds it upon trust for the trustees of the DT, whichever way you choose to analyse it).
If that is what is now documented, the debt owed to the DT will reduce the value of W’s estate.
That was the position I had arrived at. In this case, wife’s own NRB and 2 x RNRB will cover her estate for IHT as things stand.
By bringing the trust to an end (outside the 2 year period), we are possibly not helping. The family could just do nothing and when wife dies reduce the value of her estate by the value of the NRB due back to husband’s Trust.
Would HMRC accept this as a valid liability?
If so, this begs the question in other cases, why we bother “setting up” the discretionary trust arrangement after the estate of the first to die.