Previously, these types of Trust were used to take advantage of the exempt amount in a person’s estate rather than waste it by passing assets to the surviving spouse (where the accumulated assets would thereafter only have the benefit of one nil rate band). Using such a Trust could save up to £120,000 in Inheritance Tax.
The new IHT rules now mean that an unused nil rate band on the first death can be claimed on the second death, in addition to the survivor’s own nil rate band. Given this, you may think that there is no longer any place for a NRB Discretionary Trust in your Will. However, this is not always the case.
Asset Protection
Assets within the Trust are protected against any future assessment for Nursing Home costs as they do not form part of the survivor’s estate. Additionally, the assets are secure from creditors if the survivor runs a business or has given any personal guarantees.
Second Marriages
NRB Discretionary Trusts are also useful to preserve assets for children of a previous marriage, while still allowing a second spouse access to income from the assets or allowing him/her to continue to live in the home.
Flexibility in Beneficiaries
It may be more tax efficient to pass assets to grandchildren instead of children. NRB Discretionary Trusts allow this without any further variation.
Future Tax changes
Finally, in order to claim the new exemption on the death of the survivor, the legislation must still be in place at that time. Given the current Government’s track record in changing tax legislation, this might not be the case and by that time, it will be too late to consider other options.
If you would like to discuss NRB Discretionary Trusts or any aspect of Wills further please contact:
(Information posted in December 2008 may not have been updated at time of reading).