I am using a precedent from Kessler’s "Drafting trusts and “Will Trusts” 14th edition, and I cannot get my head around clauses that make gifts of the “Untransferable Residence NRB”.
So far as I can tell from a search there’s no commentary in the book itself explaining this, although if I’m wrong about that and someone could point me to it that would be really helpful.
Anyway, the clause is a gift of an “Untransferable Share of my Residence” and an “Untransferable Top-up Sum” and these are defined as follows:
7.2.5 “The Untransferable Share of my Residence” means the whole or such share of my Residence (if any) as is necessary to ensure that my estate obtains the maximum benefit of the Residence Nil-rate Band on my death without reducing the amount by which the Residence Nil Rate Band applicable on the death of my Spouse would (apart from this clause) be increased by the brought-forward allowance applicable on my death.
7.2.6 “The Untransferable Top-up Sum” means such amount (if any) as is necessary to ensure that my estate obtains the maximum benefit of the Residence Nil-rate Band on my death, if the value of my Residence is insufficient for that purpose, without reducing the amount by which the Residence Nil Rate Band applicable on the death of my Spouse would (apart from this clause) be increased by the brought-forward allowance applicable on my death.
Is anyone able to explain the circumstances in which this clause would be used? In particular, I couldn’t work out in what circumstances the amount in 7.2.5 wouldn’t be zero?
Sorry to be confused!
I have not looked back at the book, but would be surprised if JK had not explained.
This clause may be used where the testator is married, or in civil partnership, and whose estate would also be entitled to the carried forward RNRB from a previous spouse or civil partner. The clause seeks to preserve the testator’s RNRB for their current spouse/civil partner whilst using the carried forward RNRB I their own estate. Essentially seeking to preserve the ability to use 3 RNRBs
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I am perplexed. Chapter 18 of the book fully explains the underlying reasons for the drafting. Essentially where one or both spouses have been married before to a spouse who has pre-deceased them, one or other of them they may be able to claim up to a double NRB and RNRB. There is a possibility that a Will of the first to die may waste all or part of these NRBs because though they are transferable in principle the survivor can only claim a maximum of one of each, from either deceased spouse. So in the simplest case if H2 dies leaving all his estate to W who can claim maximum NRBs from H1 it would be better in principle for H2 to fully use up his NRBs on his own death leaving W to claim from H1. Even more so if W is in fact W2 for H2 and he can claim from W1.
James Kessler has undertaken the formidable task of drafting the Will of the first spouse to die so that maximum advantage is taken of that spouse’s NRBs and TNRBs given the respective sizes and composition of the two estates and the identity of the likely beneficiaries. I doubt he would dissent from the observation that the drafting is complex but for that you must blame the legislation (which the drafting carefully tracks) and the inevitable uncertainty involved in any Will being prey to alternative possible outcomes and unforeseable future changes in circumstances.
But you are right to be fully aware of the dangers of using a precedent without understanding what it seeks to achieve and how.
Thank you, @paul and @jack. Very useful replies, thank you so much. Yes I imagine I would have found that narrative more easily with a copy of the physical book! Thank you for the pointer.
I respectfully agree with the posts of Jack Harper and Paul Saunders.
What I think would help to explain the clause best would be a couple of worked examples. I’ll add that to the next edition, currently under preparation.
James Kessler QC
15 Old Square
That’s great: thank you so much for commenting. I had to put down Chapter 18 in order to respond to this, and am glad to have some bank holiday reading.
Would it work, and make the clause more transparent if the definition was changed to:
“The Gifted Share of my Residence” means the whole or such share of my Residence (if any) as is necessary to enable my estate to obtain the benefit on my death of the Residence Nil-rate Band which arises from the death of X (the first wife/husband who has died)" with a similar definition for the top up sum?
I note that para 18.10 of Kessler 13th edition states “The rule that transferable NRBs cannot be more than double the single NRB …”.
Is this correct?
A testator’s (T) own maximum NRB cannot be increased by more than 100% of that value meaning that T’s maximum NRB including any transferred element cannot exceed twice their own maximum amount.