I am dealing with a large taxable estate. Residue split equally between 2 children and the remaining 1/3 into a Discretionary Trust. The class of beneficiaries includes the children and remoter issue of the deceased. The intention behind the Trust I believe is to make provision for the deceased third child.
On the face of it this limits the claim to the RNRB to 2/3’rds.
The third child is likely to be deemed a vulnerable person. There is a clear agreement within the family that this share of the estate will be for the benefit of that third child.
Do forum members agree that it would be possible for the Trustees of the Discretionary Trust to appoint that 1/3rd share of the residuary estate upon the terms of a Vulnerable Persons Trust and make the relevant election to HMRC in order to secure the full RNRB? If so I would assume that the Deed of Appointment needs to be made within 2 years for the reading back provisions to apply and further the election made within 12 months. Please can you confirm whether this is correct?
Also a slight concern relating to timings and whether HMRC (Inheritance Tax) will want to see confirmation that the Vulnerable Persons election has been accepted before granting relief.
“The third child is likely to be deemed a vulnerable person.” is a curious turn of phrase. (Not to ignore “deceased [?] third child” unless I am missing something.) One wouldn’t pursue a VPT unless the beneficiary is actually receiving DLA at the middle rate, or one of the other qualifying benefits: Trusts and taxes: Trusts for vulnerable people - GOV.UK Once drafted and executed you file HMRC Form VPE1 and it will normally be routinely accepted. Then you file tax form SA900 every year, not forgetting to answer the questions at Box 10B (we did forget one year and HMRC politely reminded us). You’ll need a model income and capital gains tax calculator for the beneficiary as the VPT is taxed at his/her rate. We do this simple calculation (the revenue is always under the personal allowance) with MS Excel and then enclose a PDF with the SA900. Quite typically VPTs are convenient for autistic children who are diagnosed early because they will have the right to the qualifying benefit (DLA at middle level or equivalent benefit) at least until reassessed at age 16, but even if they later lose DLA the VPT status of the discretionary trust continues. In our case since the beneficiary has a US connection (but is not now a US citizen or green card holder) we included a provision for change of situs to a US state. The problem is that he is unlikely to qualify for the strict criteria of the Social Security Administration for disability benefits, and thus for a Special Needs Trust. We sought and got a ruling from IRS Ogden UT that the VPT was not a “foreign trust” for US tax purposes as the settlor was a U.S. Person.
The Kessler treatise suggests that a VPT would normally be funded below the RNRB £325k amount.