Will drafting and the RNRB

With various amendments to account for interim legislative changes, I use precedents from “Tax-Efficient Will Drafting” (co-authored by Stephen Arthur, Chris Jarman and John Thurston), a book that forum members are doubtless familiar with.

Upon the first to die of a married couple, the “model [mirror] will” template therein creates a NRBDT (1st trust) and a life interest trust (2nd trust) for the surviving spouse. Upon the demise of the survivor, only the 2nd trust is formed without a life interest (i.e. a discretionary trust) with the whole of the net estate. At that time, the ending of the survivor’s IIP under the life interest trust (set up by the Will of the first to die) also leaves a discretionary trust.

Let’s assume that the couple have lineal descendants that could inherit.

Position on the first death
From the point of view of making use of the RNRB (and keeping the survivor’s estate as small as possible), where the estate of the first to die has sufficient assets (apart from their share in the main residence) with which to fund the NRBDT, then the arrangements that are put in place upon the first death seem fine – the deceased’s share of the residence can pass into the life interest trust, the wife’s IIP thereunder is an IPDI and thus she has a qualifying residential interest in the deceased’s share of the residence. The RNRB of the deceased is not used but passes to the survivor.

Where the estate of the first to die has insufficient assets (apart from their share in the residence) with which to fund the NRBDT, whilst it is difficult to envisage all possible future scenarios (especially as regards property prices and future allowance levels), unless the estate of the surviving spouse may breach the RNRB threshold (which would imply a significant disparity in assets between the spouses), it would seem to be generally undesirable to have a share in the matrimonial home or an interest-bearing IOU secured thereupon passing into the NRBDT. Better would be to have both the RNRB of the deceased and part/all of the deceased’s NRB pass to the survivor.

Solution – on the first death for the Will to direct any share in the matrimonial home to the life interest trust?

Position on the death of the survivor
Clearly the trust set up under the survivor’s Will will not fulfil the lineal descendants conditions and neither will the ending of the survivor’s IIP since both will result in the interests in the residence being held on discretionary trusts.

Solution – subject to the life interest of the survivor (where this is created) for the 2nd trust to contain IIPs in favour of the lineal descendants as far as the residence is concerned?

Comments much appreciated.

Paul Storrie
Storrie & Company

On the first death the trustees of the NRB trust can appoint the relevant house or share to the life interest trust, or there can be an unsecured iou. A specific gift of a house had dangers even before the RNRB, doubly so now in more complex estates with perhaps 2 houses that would qualify.

There must be an absolute interest taken on the second death in relation to the reversion of the life interest trust. An IIP for lineal descendants would not meet the criteria in the Act.Best for the life interest to be subject to overriding powers excercisable only during the surviving spouse’s lifetime.

Simon Northcott

A quick reply.

D is deceased parent. B is his son.

If D has an IPDI in the property, then on his death, B must become beneficially entitled to it (absolutely and indefeasibly) in order to ‘inherit’ for the purposes of the legislation (s8J (5)). So, no age contingencies.

So B cannot have an IPDI/IIP – he must have an outright gift in order to benefit from the RNRB.

If D on the other hand leaves property which was not settled immediately before his death, a whole world of possibilities opens up for settlements (well, almost) – see the various dispositions which are possible under s 8J (4). Or it can simply be a straight gift – see s 8J(2).

Jill MacMahon
Thackray Williams LLP