Up until 9th October 2007, it was common for people to have Nil Rate Band Discretionary Trust Wills drawn up as a form of tax planning for the family.
The idea of these wills is that everything up to the inheritance tax threshold on the first to die passes into a Discretionary Trust. The funds in this trust are then held by the Trustees on benefit for the survivor and other beneficiaries such as the deceased’s children and grandchildren. The funds in the Trust usually comprise a half share of the matrimonial home and any sole accounts held by the deceased. Joint accounts will pass automatically over to the survivor.
When the second spouse dies their assets would generally be the remaining half share of the property and their own sole accounts because the other half is still in trust. This should then mean that the second spouse’s estate falls below the inheritance tax threshold thereby saving inheritance tax on their Estate.
From October 2007 the government introduced the transferable nil rate band which meant that where a person leaves their estate to their spouse, then the survivor can benefit from an additional allowance which can be up to double the inheritance tax threshold. Therefore on the first death, the estate should be exempt for inheritance tax purposes because it is passing to a spouse, and then on second death the surviving spouse can have up to £650,000 before any inheritance tax is payable.
In addition there is a Residence Nil Rate band allowance for the family home which from 2020 can allow a married couple (or civil partners) who gift their property to direct descendants (children, step children, adopted children are some that are included) to benefit from an additional allowance of £175,000 each so that a married couple with children could have an Estate up to £1 million before any inheritance tax would be payable.
These changes mean that these type of Wills are not always needed for tax planning purposes. However they can have their own benefits to protect assets for future generations.
Depending on your circumstances it might be that a type of Life interest or a full Discretionary Trust might suit your needs. You may prefer to get rid of the Trust altogether and have simple Wills prepared.
As such the best option would be to speak to one of our specialists who will provide you with the best options for you and your family.
For more information or some preliminary, confidential advice contact a member of our Private Client team in your local office.