We are acting for a widow and in her husband’s Will he left a discretionary nil rate band trust. The surviving spouse is one of the Executors and Trustees. It has been decided to keep the discretionary nil rate band trust and not wind it up. There was £40K left in legacies to non-exempt beneficiaries so £285K passed into the Trust. (We are now beyond the two year anniversary from the date of death). The Trustees are now considering appointing out of the Trust £150K consisting of three payments of £50K to each of the deceased’s children. This will leave £135K in the Trust.
The assets in the estate that can pass into the Trust are money held in three stocks and shares ISAs worth approx. £77K, unit trusts and separate shareholdings. The question we have is if the Trustees decide to arrange to transfer the stocks and shares ISAs into the Discretionary Trust and following this the ISAs are appointed out in favour of the surviving spouse, will they lose the benefit of the ISA wrapper which can usually be transferred to the spouse within three years of death?
Rather than passing assets into the Trust, would it not be beneficial for the widow to request a Loan from the Trustees instead of that capital being placed in Trust. The loan could be secured by a charge on the widows property, repayable from her estate when she dies. It serves a similar purpose in that it would still remain part of the Trust, with less administration needed. The widow could then decide how she wishes to deal with the capital with first consideration being the transfer of the ISA funds to her name, as I also believe that Trusts cannot hold ISA investments.
The making of a loan which is not repayable on demand will reduce the value of the trust property to some extent and so will be a chargeable event for a relevant property trust, though the rate of tax may be nil or acceptably small.
I agree with Malcolm that an ISA cannot be held within a trust.
However, might the trustees exercise their discretion to appoint the ISA to the widow before it is appropriated in partial satisfaction of the NRB trust?
The executors could then transfer the ISA to the widow in accordance with the appointment.
That way, the ISA does not come within the trust and, might be saved.
Having said the above, I wonder if we are making the situation more complicated than it need be. Do the existing ISAs need to be transferred to the widow, or is it a case that she can claim the value of her late husband’s ISAs as an additional ISA allowance and introduce assets to that value, whether cash or investments, into her own ISAs? If this is the case, then such right is personal to the widow and cannot be subject to the trusts under the husband’s will.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals