Will with DPT and Discretionary Trust - how best to structure

Trusts Discussion
1

Good morning

My client wants to set up a DPT for her qualifying daughter.

My client’s estate is about £1.1million, property £600k and cash £500k. Full NRB allowance of £1million available.

She originally told me that she would like to leave property to the DPT with cash residue to a Discretionary Trust - beneficiaries to be the same daughter, her son and his issue.

She doesn’t want to leave all estate to DPT as she’d like her son to be able to benefit too but to a lesser degree as he has already received a gift of a London property - exempt gift as over seven years ago.

She was thinking she would pass the property to the DPT and cash to DT but I’ve advised her about high income tax charges of the DT.

I’m thinking she’d be better off drafting the will to leave a legacy of one standard NRB to the DT with residue to the DPT. Do you agree this would be the best way to draft the Will?

The Trustees (the son is one of the Trustees) could choose to satisfy the DT with a part share of the property thus avoiding higher income tax charges OR with cash as they think best.

Would this create a joint ownership situation so that on appropriation, the DT could receive a part share valued at 15% over the NRB (providing daughter is in occupation) and then on daughter’s death (as beneficiary of the DPT) there could be a further 10% discount on share belonging to DPT?

Many thanks

Deborah

2

I tend to advise starting off with a normal discretionary trust in order to be more flexible, and then to resettle onto a disabled trust within 2 years if still required in order to get the RNRB. That’s usually in the form of a pilot trust, especially if the client wants to contribute to it during their lifetime.

What would be the thinking behind the NRBDT rather than just leaving half the estate to the son subject to a hotchpot clause?

3

Thank you Eddie

Son is not to have half whist her daughter is alive. All of her estate is to be used to provide for her daughter - so the DPT is necessary at the outset. Plus we know already that RNRB will be needed.

The rationale for the NRBDT would be to keep TYAs and exit charges to a mininum - avoid them if necessary.