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Matthew Hutton MA, CTA (fellow), AIIT, TEP, highlights an apparently common Inheritance Tax issue involving married taxpayers (or civil partners) with Nil Rate Band Discretionary Trusts in their wills.

Context

The scenario on this issue (which provoked a significant number of postings) was set on 29 July 2009 as follows:

"We are finding that a number of clients are taking the line that with the advent of the [Transferable Nil Rate Band] TNRB they do not need our assistance in dealing with Probate of the Will of the first spouse to die with a Will containing a NRB. Not surprisingly we try to discourage people from doing this and point out that the trust needs to be brought to an end by a Deed of Appointment (I appreciate that some versions may not require this but most, including the one we use, do) and also that the trust contained in the Will could be put to good use by creating an [Immediate Post-Death Interest] IPDI in place of the NRB discretionary trust. Notwithstanding this advice the clients seem to go off, get a personal grant of probate, ignore the NRB trust and transfer all assets to the surviving spouse. At some stage thereafter they may or may [not] seek some further advice, preferably on the 'phone because they don't want to pay our fees, on how to avoid IHT, nursing home fees or something similar!

In these circumstances aside from my general level of irritation with this sort of client I have two questions:

1. Clearly the NRB trust has not been properly constituted. In the circumstances what does the forum think is its status? Has it simply failed or does it still have some status, for example could the Executors be liable for a breach of trust if the surviving spouse goes off and spends everything?

2. Does anyone have an idea of what is [HM Revenue & Customs'] HMRC's attitude to this situation? My concern here is how does one claim the TNRB when on the face of the Will the Nil Rate Band has been used up. Will HMRC take a pragmatic approach or does the forum think that they will simply look to the terms of the Will and consider that the NRB has been used up?"

(Trusts Discussion Forum 29.7.09, posting by Anthony Tahourdin of Herrington & Carmichael LLP)

A summary of the 12 responses on 30 July

Formal action is required, typically by deed of appointment in favour of the surviving spouse. Otherwise the Trust remains in existence, with its asset a chose in action, viz the right for the trustees to have the assets of the estate up to the NRB transferred to them. The executors are liable to the trustees until they do so and the trustees will be in breach of trust if they have not pursued their rights against the executors. Suppose that the widow remarries leaving her estate to her new husband, this is bound to be pursued by the children of the first marriage. HMRC are likely to be pragmatic. (Simon Northcott of Brooke-Taylors)

Chris Whitehouse has said that HMRC will readily accept that there is a debt for the value of the NRB against the surviving spouse’s estate. (Tim Adams of Barlow Robbins LLP)

However, it all depends on the circumstances: if the whole estate passes by survivorship such that a deed of variation would have been required to constitute the NRB trust, clearly the executors and trustees cannot be liable. 

Indeed total inaction on the part of the executors will leave them harmless.

What happens if the nominated executors/trustees simply allow the surviving spouse to assume possession of a deceased’s assets?  Perhaps in relation to personalty this could be a valid exercise of trustees’ powers, though clearly not capable of passing an interest in real property.

Counsel’s advice is required (Tim Gibbons).

The terms of the Will would determine what was required validly to vest a trust fund, that is whether a deed of appointment is required or a mere appropriation would suffice.

THE 8th ESTATE PLANNING CONFERENCE: CURRENT ISSUES 2009

A full-day Conference presented by Matthew Hutton

Five round the country locations

SEPTEMBER • Newmarket • Sutton Scotney, Nr Winchester

OCTOBER • Winterbourne, Nr Bristol • Leeds • London

EAST - Thursday 17 September  Bedford Lodge, NEWMARKET CB8 7BX

SOUTH - Thursday 24 September Norton Manor Park, Sutton Scotney, WINCHESTER SO21 3NE

WEST - Thursday 1 October Ramada Grange Hotel, Winterbourne, BRISTOL BS36 1RP

NORTH - Thursday 8 October Oulton Hall, LEEDS LS26 8HN

LONDON - Thursday 22 October Jury's Great Russell Street Hotel, LONDON WC1B 3NN

Directions to your selected venue will be sent with your receipted booking form. The out-of-London venues have been chosen specifically for their ease of access by car.

Testimonials: Some delegates' comments from the 2008 Conferences

“Excellent value - well presented - Notes very useful for future reference” Barry Adamson, Maclay Murray & Spens LLP

“A stimulating (and worrying) day out” Nicholas Parsons, Stone King Sewell LLP

“As ever, Matthew cuts incisively to the points practitioners need to be aware of – lots of good planning tips given” Penny Bates, Sole Practitioner

“Excellent value, excellent materials” Paul Dufty, Vantis plc

“Very useful and much relied upon update" Pat O’Neill, Irena Spence & Co

“Very informative and well presented” Nadine Jayes, Blandy & Blandy

“Provides excellent value. I have been on courses costing much more and learnt far less” Mark Baxter, Grant Thornton UK LLP

“Very good speaker - easy to understand, clear and keeps topics light” Fiona Russell, Heenans

The Speaker

Matthew Hutton MA (Oxon), CTA (Fellow), AIIT, TEP

Matthew Hutton is a non-practising solicitor (admitted 1979) who has specialised in tax for over 30 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30 September 2000, he now devotes his professional time to writing and lecturing.

Among his publications are the annual Tolley’s UK Taxation of Trusts, Trusts & Estates 2008/09 (Tottel, part of the Tax Annuals series), Tolley’s Tax Planning for Private Residences (3rd Edition 1999) and Post Death Rearrangements: Practice and Precedents (FT Law & Tax 5th Edition 1995). He is also co-author of the looseleaf Stanley: Taxation of Farmers and Landowners (Butterworths). In September 2008 Matthew launched his new eBook Hutton on Estate Planning.

Matthew is the general editor of Private Client Business, published by Sweet & Maxwell. He also writes for other journals.

Matthew has since 1977 been a partner in his family’s farming business and he belongs to the Taxation Sub-Committee of the Country Land and Business Association Ltd. He is a longstanding member of what are now the Succession and CGT & Investment Income Sub-Committees of the Chartered Institute of Taxation (CIOT) Technical Committee (and was Chairman between 1997 and 1999). Matthew is a Member of the Stamp Taxes Practitioners Group.

Discount on Fees

There is a £25 discount for a delegate who came to any of the 2008 series of Estate Planning Conferences (or for anyone whose firm sent a delegate to any such Conference). Alternatively (but not in addition), a firm sending five or more delegates this year qualifies for a £59 discount on each place.

Administrative Office
Broom Farm, Chedgrave, Norwich NR14 6BQ
Tel: 01508 528388  Fax: 01508 528096 
E-mail: mhutton@paston.co.uk
http://www.matthewhutton.co.uk/

Copies of the documentation will be available after the Conference, for those who are unable to attend, at a cost of £80 each.