Thursday, 16 October 2008
Wills & Probate : Inheritance Tax Efficient Wills
INHERITANCE TAX (IHT) EFFICIENT WILLS THE NIL RATE BAND DISCRETIONARY TRUST FUND ONE YEAR ON
. A CONTINUING NEED?
In October 2007 the current Government introduced the concept of a transferable Nil Rate Band allowance between spouses and civil partners (not however for unmarried couples) and in so doing gave statutory effect for those clients of DF Legal LLP and others who had already entered into complex arrangements utilising their individual Nil Rate Band allowances in Wills.
At first instance the change in legislation appeared to render such Wills over complicated and unnecessary.
Our original advice to clients following the changes in legislation was not to alter the arrangements entered into and to allow a period of reflection before doing anything and that advice is now reinforced. The need for such elaborate tax planning within Wills in appropriate circumstances remains as necessary and in our view as well advised as ever. The use of a Nil Rate Bank allowance within a Discretionary Trust Fund (together with the use of the debt scheme):-
1. Provides an element of protection for the beneficiaries under the Will of the first spouse or civil partner to die.
2. Affects claims from creditors attaching to the whole of the estate in the event of financial difficulty for the surviving spouse or civil partner.
3. Prevents the whole of the estate being made available for the assessment of long term care and Nursing Home fees.
4. Prevents the whole of the estate passing to a subsequent spouse or partner on the occasion of any remarriage or civil partnership.
5. Protects an element of the estate should a surviving spouse or civil partner lose capacity to deal with his or her own affairs.
As the transferable Nil Rate Band allowance only applies to spouses or civil partners, unmarried couples (statistically more numerous than married couples) clearly have a real continuing need to consider IHT efficient Will drafting.
Added to the above are potential tax advantages in continuing to use and to retain the device of a Nil Rate Band Discretionary Trust Fund created on first death, particularly if there is any growth in the value of assets within the estate of the first spouse or civil partner to die and if that growth increases at a rate faster than the increase in Nil Rate Band allowance. If retained within a Discretionary Trust there is a lower rate of tax payable on the 10 year anniversary and upon exiting the Trust.
There always remains the prospect that future Governments may well be obliged to leave the Nil Rate Band allowance unaltered in years to come or even reduce or abolish it altogether.
Our considered advice is that in appropriate circumstances careful thought needs to be given to creating a Discretionary Trust Fund of a spouse or civil partner or cohabiting couples Nil Rate Band allowance within a Will and also to consider such arrangements as part of prudent overall tax planning measures.
