Confused about the new Residence Nil Rate Band (RNRB)?
Several newspapers and Solicitor’s articles have suggested that anyone who has placed their main residence into a discretionary trust will need to urgently review their planning or be unable to benefit from the new Residence Nil Rate Band (“RNRB”).
Should estate planners be advising their clients to scrap their Discretionary Trusts?
Is it impossible to enjoy 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 their property to a “lineal descendant”, in most cases this will be a child/children.
In repeated articles we are told, that if you leave your home via a Discretionary Trust you cannot benefit from this new IHT relief. This would only become true should your estate and your beneficiaries not have the right professional advice available when it was required.
“I don’t want to lose out on this additional relief to minimise my Inheritance Tax”
We are asked to believe that the only way to proceed is to leave a share of your property to a “Lineal Descendant”, ensuring that on your death that the share of the house will belong absolutely to that named person (normally a child).
But what would happen if the child you have nominated is going through a Divorce or Bankruptcy at the date of your death or thereafter?
What happens if the Child is about to enter or has entered Long Term care … or is simply financially irresponsible?
Should we as estate planners be advising our clients to “pick” someone now, maybe twenty, thirty, forty years before that gift will be effected, completely unaware of what the circumstances will be at that point in the future???
But what alternatives do we have?
We are being told that Discretionary Trusts are no longer a viable option because in order to benefit from the RNRB you need someone to “inherit” that share of the property absolutely.
As late as 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.
So how do you maintain the flexibility and protection that a Discretionary Trust offers whilst also ensuring that your estate still gets the benefit of the RNRB?
One less reported aspect of the RNRB and its impact, is how the Trustees 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 later, and decide who is best to inherit within two years of a death. Two years to choose the best person to receive the new RNRB allowance, who might possibly be the youngest member of the family.
What if your Trustees forget?
If your choice of trustees is your spouse and/or your children or a good friend how likely is it that they will know that they have two years to jump into action?
If your plan is to depend solely upon family or friends as trustees then no, you should not risk using a Discretionary Trust. Hoping that ‘family Trustees’ know or remember to do their job, is risky to say the least!
What if there were a Discretionary Trust that removed the risk and speculation of who would be the best person to receive the RNRB? 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.
That trust is Countrywide Tax & Trust Corporation’s latest creation:
FLEXIBLE FAMILY TRUST
This new Flexible Family Trust ticks all of the boxes.
First, the peace of mind from knowing, that within two years of death your trustees can “pick the right person”.
In addition, and unlike any other trust, it includes a ‘fail-safe’. Should the trustees neglect their job when the time comes, the trust defaults for them, ensuring that the relief is never lost.
And, like all the solutions we offer, the Flexible Family Trust is both very dependable, and exceptionally good value.
No need to be confused and no need to lose out.