Which IHT allowances can be claimed - Discretionary Will Trusts

Trusts Discussion
1

Hello,

I am stuck with one of my estates, trying to work out what IHT allowances would be claimable. Can anyone help please?

Mr C died in 2024 leaving a net estate worth approx. £1.8million. His Will leaves a gift of £300,000 into a Discretionary Trust for any potential future grandchildren. The residuary estate is left equally between the Deceased’s two adult children (who are also the Executors).

The wife Mrs C died in March 2018 and left a Nil Rate Band Discretionary Trust in her Will (with Mr C, children & remoter descendants and their spouses as potential beneficiaries). Her Residuary Estate was left to Mr C. It does not appear that the Nil Rate Band Discretionary Trust was ever dealt with and, in fact, the Notice of Severance of Joint Tenancy was never registered with the Land Registry, so in practice the marital home passed by survivorship. According to her Grant of Probate, her net estate passing under the Grant was worth £98,598 when she died.

My questions are:

  1. The Executors are confident that there will be no further grandchildren and want to end the Discretionary Trust in Mr’s Will immediately. I think it would be simplest to do a Deed of Variation to remove the Discretionary Trust from the Will, but can a Deed of Variation be signed by the two Executors? Or is this impossible because they cannot sign on behalf on future (currently non-existent) grandchildren?

  2. If a Deed of Variation is not possible, and the Trust has to be wound up straight away, am I right in thinking that we can still claim the NRB regardless? And also that we can still claim the RNRB because the £300,000 required for the Discretionary Trust can be paid by the cash in the estate so the property can still be ‘closely inherited’ by the Deceased’s children?

  3. Am I right in thinking that, regardless of what happened in practice, the Transferable Nil Rate Band cannot be claimed because the nil rate sum should have gone into the Discretionary Trust? However the Transferable Residence Nil Rate Band can be claimed because the residue went to her spouse, so no Residence Nil Rate Band was used up?

Thank you all in advance!

2

Only the legal title to the marital home passed by survivorship. The beneficial interests in the property were held as tenants-in-common following the Notice of Severance. HMLR is only interested in the legal title to properties and NOT the beneficial interests in them and it is not a requirement for a Severance Notice to be lodged with HMLR in order to be effective. Therefore, Mr C held the legal title on trust as to a half share for himself absolutely and as to the other half share for Mrs C’s estate. Her NRB Will Trust still needs to be set up, in full if she held sufficient assets to do so (presumably the £98K net estate did not include her share of the marital home) or in part if there were insufficient assets. This will serve to reduce the value of Mr C’s estate.

You cannot do a Deed of Variation to remove the Discretionary Trust from Mr C’s Will. Instead, a Deed of Appointment will be required. This will have the same IHT effect as a Deed of Variation as the consequences of the Appointment will be read back as id contained in the Will, provided the DoA is done within 2 years of the death.

There may be TNRB available, depending on the ability of Mrs C’s estate to satisfy the NRB legacy and accrued interest.

The question on TRNRB will depend on the value of Mr C’s half share in the property (as at the date of his death he had no beneficial interest in Mrs C’s half share). Residue passes to the 2 children so that should satisfy the “closely inherited” rule.

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Thank you very much for your time and your very clear reply, Graeme