I am dealing with a situation where the trustees of a NRB discretionary trust are the children of the deceased and also the beneficiaries of the trust. I understand that, although the law is not clear, they could be treated as receiving the property as lineal descendants, as they are the only potential beneficiaries and the RNRB can be utilised, despite the fact that it’s a DT. Is this something other members are aware of?
Bear in mind the RNRB is only available to a person who dies on or after 6 April 2017 so if you are talking about someone who has died then there is no possibility of RNRB being available. I cannot think of many situations where the issue you are alluding to will arise so I think probably you must be referring to the sort of case where there is a NRB legacy on trust which is not contingent on the testator surviving his spouse. A discretionary trust is not a ‘lineal descendant’ for the purposes of the rules, even if the only beneficiaries of the trust are lineal descendants. However there will be the prospect of making a variation of the trust within two years of death under s. 144 IHTA to either wind up the trust in favour of one or more lineal descendants, or appoint it onto trusts that will capture the relief.
I assume the deceased (D) is the first spouse to die and it is hoped the surviving spouse (SS) will live beyond 5.4.2017.
If that is the case, D cannot use his RNRB because he dies before 6.4.2017 but it will be available for carry forward to SS’s estate.
If there is no SS, then no RNRB is available because D has died before 6.4.2017.
Even if D had died after 6.4.2017, he would not be able to use his RNRB if the property remained in the DT despite the fact that the only beneficiaries are all lineal descendants. If the property were appointed out to the children within two years, reading back could be used to transform it into an inheritance which could benefit from the RNRB.
The law is I think clear with regard to what kind of ‘inheritance’ counts for the RNRB. Section 8HJ (4) says that if the property becomes settled property on D’s death, only settlement into certain types of trust count if you want the RNRB –
S 89 disabled person’s
18-25 trust (s 71D)
otherwise reading back via DT or DoV could save a situation. DoVs are difficult with DTs because of the multiplicity of beneficiaries and the frequent inclusion of minors.
Thackray Williams LLP