The impossible just became possible!
Did you know…
There is an alternative to protective Property Trusts that works for all single married and unmarried couples and can claim the Residence Nil Rate Band (RNRB) in all circumstances.
And it’s available in the Countrywide Legacy Software!
Have your clients used Discretionary Trusts in their Wills?
Or do your clients want to include Discretionary Trusts in their Wills?
Several newspapers and Solicitor’s articles have suggested that these clients will need to urgently review their planning or will not be able to benefit from the new Residence Nil Rate Allowance (“RNRB”).
So should we be frantically advising our clients to scrap their Discretionary Trusts?
ABSOLUTELY NOT!
Is it impossible for clients to benefit from the protection of a Discretionary Trust AND benefit from the new RNRB?
After months of speculation and panic, we have been told that the RNRB will (in most circumstances) only be obtained if a client leaves a share of their property to a “lineal descendant”, in most cases this will be a child/children.
We have been told time and time again that a client leaving their estate to Discretionary Trusts will not satisfy these requirements and therefore ensure that the client will lose out on this new IHT relief. Partly true, but only in the event the estate and its beneficiaries don’t have professional experience at hand.
“I don’t want to lose out on a legitimate relief and pay more tax than that required”
We would be led to believe that the only way to proceed is to instruct a client to leave a share of their property to a “Lineal Descendant”, ensuring that on their death that share of the house will belong absolutely to that person (normally a child)?
But what would happen if the Child I have nominated is going through a Divorce or Bankruptcy at the date of death or thereafter?
>h2>What happens if the child is about to enter or has entered Long Term care or is simply financially irresponsible?
Should we be advising our clients to “pick” someone now to be the lineal descendant potentially twenty, thirty, forty years before death. Completely unaware of the what the circumstances of the chosen lineal descendant will be at the point in the future of the clients death.
We have been told that Discretionary Trusts are no longer a viable option, this is because direct descendant need to “inherit” that share of the property absolutely. Is this correct?
The answer to the above is no!
So how do we maintain the flexibility and protection that a Discretionary Trust offers whilst ensuring that our clients do not miss out on the RNRB?
One less reported aspect of the RNRB and its impact, is how the Trustees of a Discretionary Trust can benefit from a strategy in a little known section of the Inheritance Tax Act 1984 (Section 144) which gives the Trustees the power to make their choice of a lineal descendant at death later, and decide who is best to inherit within two years of a death.
This is because as of March 2017 HMRC have confirmed that the RNRB would apply where the asset transfers to a Trust and there is Qualifying Life Interest or Interest in Possession.
Two years to pick and choose the best person to receive this new RNRB allowance, that person most likely being the youngest member of the family.
But what if the Trustees forget?
Some clients choose their Spouses to be their Trustees, others choose their children and some may pick “John” from down the pub.
Are these Trustees likely to know that they have two years to jump into action, probably not?
So we shouldn’t risk using Discretionary Trusts, hoping that the Trustees will miraculously remember to do their job? There is much merit in that argument.
What if we were to offer the client a Discretionary Trust that means they do not have to “speculate” who would be the best person to receive the RNRB at the time they make their Will?
A Trust that gives the Trustees a chance to choose the best person at the date of death, BUT also ensures that if the Trustees neglect to do so, the allowance will be received REGARDLESS by default in the terms of the Trust.
Now presenting the Flexible Family Trust
Our Trust ticks all of the boxes. The flexibility within two years of death to “pick the right person” but also with the security in knowing that if the Trustees are “sitting on their hands”, the Trust defaults to appoint an Interest in Possession to a lineal descendant, ensuring that the relief is never lost.
Want to find out what else our Software can do?
Register for your free trial today!
Contact our systems team if you would like more information on our software packages, on 01926 514 392 or systems@countrywidegroup.co.uk
This article was submitted to be published by Countrywide Tax & Trust Corporation Ltd. as part of their advertising agreement with Today’s Wills and Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills and Probate
