Who wouldn’t want to provide for their spouse while passing as many assets to their children when they die? With a nil rate band discretionary trust you can achieve just that. Inheritance tax nil rate bands for married couples and civil partners now combine meaning that this group can now leave up to £650,000 (current tax year) on the death of the second spouse free of inheritance tax. Add in the new Residence Nil Rate Band and that can grow further still.
In lay terms a discretionary trust is one where the trustees have discretion about how the income generated by assets placed in the trust can be used, and of course how those assets are eventually distributed to beneficiaries, usually the spouse and children. A nil-rate band discretionary trust can be used for estate planning to reduce the potential liability to Inheritance tax on the death of a surviving joint owner of a property. It’s particularly common in areas where property prices exceed the Inheritance tax threshold, something many need to think about if living in the South, especially in or around the M25.
So what does a nil-rate band discretionary trust have to do with care fees? Well, amongst other benefits, which I will not go into in this short article, if the surviving spouse or civil partner needs to go into a care home, quite often the family will need to sell the family home to pay the care fees. By putting a share of the property, equal to the nil-rate band, into trust you could protect the family home as the trust ring fences that amount and takes it out of the surviving spouse or civil partners estate for means testing by a Local Authority.
Of course, as with all tax law, careful consideration is needed to ensure this works for you. Trusts come with associated costs and implications sometimes running head on into each other, and professional advice should be sought before deciding on the best course of action.
This information provided in this article is not intended to constitute legal advice and each relationship breakdown requires careful consideration in our view by a fully qualified Solicitor before decisions are made and before you embark on a certain course of action.
Nino Cuffaro – Wills, Trust and Probate
T: 020 7183 1485