Discretionary Trusts & Reviewing Your Will

In her latest blog, Timms Sara Hilliard talks about discretionary trusts and reviewing your Will….

Have you reviewed your Will since 2007? We would advise that you do, especially if your Will incorporated a Discretionary Nil Rate Band Trust.

Discretionary Trusts

This type of trust was popular prior to 2007 as it was a way to preserve the nil rate band (the amount a person can leave free of inheritance tax) of the first spouse to die, where the estate was potentially subject to inheritance tax. It did mean though, that on the first death, the trust holding the nil rate band needed to be addressed and unfortunately, we have found that in some cases, it was ignored.

Where it was not ignored, a debt or charge would often be set up against the property to minimise the administration required.

What Happens Now?

More recently, Deed of Appointments have been used within 2 years of the death to collapse the trust and to appoint the entire estate to the surviving spouse (on occasion using life interest trusts) so that on the surviving spouse’s death, the estate could simply claim any unused nil rate band.

The reason for this is that in 2007, the law changed, and the nil rate band became transferable. This meant that couples could revert to more straightforward Wills and could leave everything to the surviving spouse on the first death, without losing the valuable inheritance tax free allowance.

Reviewing Your Will

In short, whilst Discretionary Trusts remain advantageous in some cases and still have many uses, a review of your Will now could simplify a situation where spouses do not want the extra complication of a trust.

We would always promote reviewing your Will every 3 to 5 years in any circumstances as life changes can alter the effect of a Will.

For further information, please contact Sara Hilliard F.C.I.L.Ex on 01332 364436 or by email s.hillard@timms-law.com.

Sara Hilliard
June 2021