Do you have a complicated trust in your will, and do you still need it?

Ann Christian, partner in our Personal Law Team reports that this is a question she is increasingly asked by clients who have not reviewed their wills for some time.

She explains that there was a time when to make your Will tax efficient, you had to have a long and (very) complicated "Nil Rate Band Discretionary Trust". This was before the Inheritance Tax Rules changed in 2007, so that inheritance tax allowances could be transferred between spouses.

Whilst this change did mean that Wills could be much shorter and simpler, with the same tax consequences, many people simply left their wills as they were. Those with "old style" wills can simply forget about these trusts, can't they?

The short answer is no!

In broad terms, the inheritance tax advantage for this sort of Trust may have gone, but in some circumstances it can still be a very useful vehicle for sheltering family assets, after somebody has died. It is a good idea to get specialist advice about the Trust, even if the family deals with other aspects of the estate administration without professional help.

The family may ultimately decide that the disadvantages of keeping the trust outweigh its potential benefits, but that is a decision that should be made after considering the implications properly. There are formal steps that need to be taken, whatever they decide to do.

In a Pickle

There are also lots of families where one of the couple died some time ago, and the family assumed that they could simply ignore the Trust in the Will, and treat everything as passing to the surviving spouse. Surely, the nil rate band allowance could simply be transferred over for use on the second death, if the Trust was for the benefit of the family and everyone in the family agreed they did not want it?

What actually happens is that when the surviving spouse dies, there is a bit of a pickle as all of the assets are in that spouse's name, but only their own nil rate band allowance for inheritance tax calculation can be used. The first spouse's allowance has been lost, as when HMRC look at that person's will they see that assets were left to a trust, rather than the spouse.

Here to help

Ann explains that LCF Law are used to helping families out of this tangle, to ensure that the inheritance tax bill is minimised. There is no obligation to use LCF for the whole of the estate administration process, they are happy to advise and assist on specific aspects as required. They are also able to review an estate even years after the first death, to ascertain what has actually happened, and how this will impact on the inheritance tax position on the second death.

For further assistance on this matter you can contact Ann on01943 885 782 or email directly.

This article was written by Ann Christian. Ann qualified as a Solicitor in 2001 and has specialised in Private Client work since then. She is based in our Ilkley office.

She is experienced in handling estates with agricultural or business elements and where inheritance tax relief is negotiated. Many clients come to her when they are experiencing an emotionally difficult time in their lives - and Ann takes away any concerns and worries with her expertise and personable approach, so that clients can concentrate on the important things.

A member of The Society of Trust and Estate Practitioners (STEP) and Solicitors for the Elderly, Ann also sits part-time as a member of the First Tier Tax Tribunal.

You can contact Ann on01943 885 782 or email directly.