A nil rate band discretionary trust is used to mitigate inheritance tax liability. IWC are legal specialists in estate planning, IHT, probate and will writing; we can help you use a NRBDT to lessen the liability of the estate so your legacy is passed to your children, rather than the Government. Call us free on 0800 612 6105 to find out more, lines are open until 10pm, 7 days a week.
Why Use a NRBDT?
Despite changes to the Finance Act in 2006, which allowed nil rate band transference, it is still a useful tool for inheritance tax avoidance. At the time, the Chancellor urged that with the introduction of the new laws, there was no longer any need to use a trust to enable the use of both spouses NBR allowance. Consider the following example which demonstrates that while this may seem straightforward; offering greater exemption, it is far from black and white.
Scenario - Mr & Mrs Z buy a house in 2010 for £650,000 and convert to Tenants in Common (so they have £325k of equity each). Wills are then drafted so as to include a nil rate band discretionary trust.
Death of Mr Z - His equity of £325k passes to the NRBDT and an equitable charge is arranged which is linked to the House Prices index.
5 Years Later - The property market recovers and the house has risen in value to £850k. The law has also changed and the nil band rate has been increased to, say £400k.
The Death of Mrs Z - The equity in Mrs Z`s share of the house has risen to £425k, this leaves a taxable amount of £25k. This means inheritance tax would be 40% of this, £10,000 due.
Without the Trust - Upon the death of Mrs Z, the estate would be worth £850k, with a double NBR of £800k, leaving a taxable amount of £50k. IHT would be £20,000.
That`s £10k more than in the scenario where Mr Z puts his equity into a trust!
Access - The surviving spouse can access the funds, interest free loans can be made too which are repayable on their death reducing IHT liability even further.
Not Assessed as Capital - The assets held in trust are not used to assess the financial wealth of the surviving spouse; this is beneficial if they were to require long term care.
Flexibility - If circumstances have changed between the time the will was made and the first death, trustees have the flexibility to act in accordance. A discretionary trust also enables the trustees to provide financial assistance beneficiaries when they need it such as to fund a University degree.
Guarantee - The assets of the trust will pass to your children rather than for example, your spouse`s new partner if they re-marry.
IWC offer free help and advice on matters relating to estate planning. If you`re interested to find out whether a nil rate band discretionary trust is a good option for you, call us free on 0800 612 6105.