Do I still need a Nil-Rate Band (NRB) Trust in my Will?
What is a Nil-Rate Band Discretionary Trust?
A Nil-Rate Band discretionary trust within a Will is a type of trust which utilises the maximum available Nil-Rate Band (being the amount that passes free of Inheritance Tax on death) which can then benefit beneficiaries included in the trust in such amounts and at such times as the appointed trustees decide within the scope of the trust terms.
Prior to 2007 there was a trend to put Nil-Rate Band discretionary trusts in Wills for married couples to use both parties Nil-Rate Band, as it was not possible to transfer any unused allowance to a spouse. However, since the introduction of the Finance Act 2008 it has been possible to transfer the unused part of a deceased spouse’s Nil-Rate Band to the survivor and there has been a decline in new trusts of this nature being included in Wills.
Should I keep my Nil-Rate Band Discretionary Trust / add one to my Will?
The Nil-Rate Band discretionary trust is still a relevant estate planning mechanism which is sometimes overlooked or misunderstood but they can be valuable where:
The testator requires a degree of flexibility over how the fund is used after their death but wish to limit the gift to the amount that passes free of tax;
If you remarry after being widowed and wish to utilise their Nil-Rate Band;
As a means of providing asset protection, shielding a share of the family home for example.
Using such trusts can also give the survivor Inheritance Tax advantages.
I hear that trusts defeat the Residence Nil-Rate Band. Will I lose out on the Residence Nil-Rate Band if I have a Nil-Rate Band Discretionary Trust?
The Residence Nil-Rate Band is an additional allowance where you have an interest in residential property and the interest is passing to a direct lineal descendant. A trust which only contains the Nil-Rate Band and any transferable Nil-Rate Band from a former spouse will not lose you your Residence Nil-Rate Band, nor will it prevent your spouse claiming any unused part of your Residence Nil-Rate Band on their death so long as the other conditions for the allowance are met.
A Discretionary Trust over your Residuary Estate or even a trust for certain children, for example grandchildren, nieces or nephews, at a specified age which might prevent your estate benefiting from this allowance if action is not taken to remedy the position in the 2 years immediately after your death.
If you have any concerns over whether your current Will is effective and whether you are maximising your options to benefit from the tax exemptions and reliefs available, then contact the Wills Trusts and Probate team on 01202 525333 to arrange an appointment to review your Will and estate planning arrangements.
How can we help?
When you submit this form an email will be sent to the relevant department who will contact you within 48 hours. If you require urgent advice please call 01202 525333.