Is the Nil-Rate Band Trust in Your Will Still Serving a Purpose?

News - 29/05/2014

If your will was drafted prior to 2008, it is very possible that your will contains a “Nil Rate Band Discretionary Trust”. Before 9 October 2007, the nil rate band (‘NRB’) was often wasted when assets passed entirely to a surviving spouse because UK domiciled spouses are exempt from IHT on all gifts in lifetime and on death. The NRB is the amount that is chargeable to inheritance tax at 0%. In order to make full use of both spouses’ nil rate bands, spouses could give the NRB amount to other beneficiaries that would normally be subject to tax in their wills, for example to their children or grandchildren. However, this frequently left the surviving spouse with insufficient assets and so moving the assets into a NRB discretionary trust was a more attractive option as it gave the surviving spouse and children access to the funds as required.

Following the introduction of the Finance Act 2008, changes in the law allowed a married couple or civil partnership to make use of the unused NRB of the first spouse to die.  Consequently, if a husband predeceased his wife and left all of his estate to her, and thus not using his NRB, on his wife’s eventual death, her personal representatives can make a claim for his full NRB. If the husband had left other gifts to non-exempt beneficiaries, such as children or grandchildren, they could claim the unused percentage of the NRB.

If you still have this type of trust in your will then it may be worth reviewing it to see if the NRB still serves a useful purpose because in most cases the complexity and professional and administrative costs of setting up and running a trust now outweigh the benefits and can often cause further complications.

However, there may be circumstances where a nil rate band trust still conveys a benefit, including:

-if either of you has been married more than once and would like to make provision for children from a previous marriage;

–  if you have assets that are likely to increase in value considerable;

–  securing agricultural property/business property relief; or

–  in circumstances where you would like to leave the NRB to someone other than your spouse but would like to do so with a degree of flexibility or until there is certainty that the surviving spouse will not need those assets.

If you would like to discuss or review your existing will, then please contact Morrisons Solicitors LLP on 01737 854 500 or email [email protected].

 

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.