Married couple had Wills with classic NRB Discretionary Trusts (with debt/charge powers), from the the days before Transferrable NRB. Wife died in 2019 with a testamentary estate in excess of the NRB. Estate was not administered, other than minor matters. Husband is now finally considering getting things sorted.
The gift to the trust is of the largest amount that can be paid without creating IHT i.e. £325K. Hence, I see it is a pecuniary legacy, which remains outstanding after more than the initial 12 months. Can members confirm that
to satisfy the gift trustees are due normal interest for the subsequent 3 years, on top of the initial £325K gift
trustees will need to report that interest as income received by the trust
if the trust is left in place long term then at the 10 year anniversary there will be a periodic charge to be considered.
If only the family had heeded warnings not to ignore the administration, but you can lead a horse to water…
I think you are right as to your first two bullet points.
The 10 year anniversaries will certainly commence on the date of death: s83 IHTA. But the question is when does the trust property enter the trust: s66(2). This turns on whether the admin period has ended as regards the pecuniary legacy, a regular issue debated on this forum, which in turn involves whether the PRs have assented to the DT trustees or to themselves as such.
Although it is best practice to assent in writing it is possible for PRs to impliedly assent, with no written evidence, not even for an assent of an equitable as opposed to a legal interest in land: Re Edwards WT [1982] Ch 30. Whether, and if so when, that has happened is a question of fact. HMRC will usually accept the PRs’ decision on it, but naturally not when it does not suit them.
If the PRs retain an unexercised discretion as to charging an asset with the legacy or appropriating an asset to satisfy it, then it is not clear whether any property has yet become comprised in the trust. Unless the trust puts a time limit on that decision, it is a moot point how long that argument would hold up. There is an argument that the trustees currently possess a thing in action, the right to have the estate duly administered, but I severely doubt whether that is “property comprised in the settlement”; it is a right to insist that some property should become so comprised, albeit a right held by a fiduciary and not personally.
s91 IHTA does not assist because although it operates during the admin period it does so only as regards a beneficiary’s interest.
I imagine that in your case you do not expect to drag things out past the first 10 year anniversary so it is likely that the above will just give you an argument that the rate of tax should be reduced under s66(2). Where that anniversary has passed, and stranger things have happened with protracted admin periods, it would seems arguable that at that precise time there was no taxable property. No doubt HMRC will challenge as they have not thought about it and as it favours the taxpayer it must wrong.