Why make a Nil Rate Band Discretionary Trust Will and what are they?

When thinking of making a will it is important to be able to consider what type of will is available and which type of will would suit your individual circumstances best. A Nil Rate Band Discretionary Trust Will is a flexible trust. The trustees are the owners of the assets and have discretion to pay income or capital to any one or more of the beneficiaries of the trust fund. This type of will can be useful in some of the following circumstances:- If you have relatives or children from a previous marriage or relationship and you wish to ensure that they are provided for and inherit part of your estate. If you and your spouse have children and you want to ensure that the assets in the trust fund pass to your children if your spouse remarries or goes through a civil ceremony and not to your spouse’s new partner.

If a child is not good with money or has addiction problems, i.e. drugs, alcohol, gambling. The trustees can manage the money and see to it that trust money is only spent on rent and necessities and not on the addiction as the money is paid to a beneficiary at the discretion of the trustees.

If a child gets divorced their spouse might end up with all of that child’s inheritance in a divorce settlement. A discretionary trust may help protect against this as no defined amount of the trust fund belongs to any one individual, the assets are owned and managed by the trustees and money paid to the beneficiaries at the discretion of the Trustees. English courts are changing and they are beginning to look at trusts it has been stated that a discretionary trusts is a possible reasonable expectation of benefit. The risk of any trust being attacked is reduced if it is created and funded well before a beneficiaries’ marriage Many people who reside in care homes are eligible to pay inheritance tax on their estate. These people may have to sell their home being their main asset to fund the cost of care. The care home costs could easily eat up the whole of a small estate leaving their children with no inheritance. The discretionary trust will enable the preservation of some capital for the children. The assets held in the discretionary trust are not assessed as capital of a surviving spouse by the local authority to determine whether they have to pay the care costs if they need long term care.

If there are assets in your estate and the value of those assets are expected to grow faster than the nil rate band of inheritance tax. Interest free loans can be made to surviving spouse repayable on his or her death further reducing their IHT liability. The trustees can provide for a disabled beneficiary on a discretionary basis this can be done if done properly without the beneficiary losing their right to a disability benefit

If in the future a beneficiary becomes bankrupt the trust can help to protect the beneficiaries inheritance from the trustee in bankruptcy, because no money is payable to the beneficiary unless the Trust Fund Trustees in their discretion decide to provide the beneficiary with money at any given time. Trusts attract capital gains tax. Trustees do have to pay income tax on a trust’s income at a rate applicable to discretionary trusts, but if the beneficiary is not a high rate tax payer they may be able to claim a tax rebate.

Accounts will need to be prepared and maintained and a tax return will need to be lodged each year which is an added trust expense.

Tax legislation at present imposes on each ten year anniversary of the creation of the trust if the trust exceeds its own nil rate band, a charge to inheritance tax which is also payable when funds are passed from the trust to a beneficiary (but the 10 year charge is taken into account and any available reliefs).

Inheritance tax is paid at 40% above the nil rate band the nil rate band is currently £325,000.00 for the year 2012/2013 so no inheritance tax would be payable on an estate valued at £325,000.00.

If you think that a discretionary trust will would be right for you, please do not hesitate to contact this firm for a free quotation on +44 (0)208 539 0075.

This guide is intended as general information only it does not seek to summarise the relevant legislation which is a complex and technical area of law. You should take specific professional legal advice relating to your personal circumstances prior to proceeding with any action.