Tweet
Hello, I'd be very grateful if anyone can assist me with this query.
My parents wrote mirror wills in the 1990s which basically said that on the death of the first spouse, everything would be left to the surviving spouse, with the proviso that the inheritance-tax-free portion of the deceased person's estate would be placed into a discretionary trust, to be distributed according to the wishes of the surviving spouse. This was apparently a common method at the time which allowed the surviving spouse to pass this amount on at a later date, free of inheritance tax, and it was necessary because this value could only be realised by selling the family home, something that the surviving spouse would not necessarily want to do immediately upon the death of their spouse.
Therefore, when my father died in 2002 this amount (£255k) was effectively placed into a discretionary trust, in the form of a charge against the family home they both lived in.
In the years since then, the law has changed to make this structure far less necessary, because in addition to the inheritance-tax-free amount that each spouse is entitled to (now £325k) there is in addition an extra nil-rate band which applies when a main residence is passed on to children / grandchildren, of £175,000 per person. This means that now, a married couple can pass on assets, including their home, of up to £1 million in total, free of tax.
Happily, my mother is still with us, but wants to understand how the situation from when my father died 20 years ago needs to be dealt with in light of today's legal requirements. Currently, I can see two possibilities but there are no doubt more.
Possibility 1: View all the trust issues and associated paperwork as notional, and work on the basis that she is entitled to pass on my father's £255k held in trust, plus the £175k that represents my father's main residence nil-rate band, plus her own amounts (currently £325k and £175k), free of tax. She still lives in the same house they both lived in.
or
Possibility 2: Did the creation of the £255k trust to safeguard my father's inheritance-tax-free amount somehow disrupt and therefore preclude my mother's ability to pass on my father's IHT nil-rate band, as well as his main residence nil-rate band?
I am not an expert by any means, which is why I am here and looking for help. I'm sure I'm not the first person ever to be in this situation and so I hope someone more experienced and knowledgable will be able to weigh in, with an informed view!
Thank you.
My parents wrote mirror wills in the 1990s which basically said that on the death of the first spouse, everything would be left to the surviving spouse, with the proviso that the inheritance-tax-free portion of the deceased person's estate would be placed into a discretionary trust, to be distributed according to the wishes of the surviving spouse. This was apparently a common method at the time which allowed the surviving spouse to pass this amount on at a later date, free of inheritance tax, and it was necessary because this value could only be realised by selling the family home, something that the surviving spouse would not necessarily want to do immediately upon the death of their spouse.
Therefore, when my father died in 2002 this amount (£255k) was effectively placed into a discretionary trust, in the form of a charge against the family home they both lived in.
In the years since then, the law has changed to make this structure far less necessary, because in addition to the inheritance-tax-free amount that each spouse is entitled to (now £325k) there is in addition an extra nil-rate band which applies when a main residence is passed on to children / grandchildren, of £175,000 per person. This means that now, a married couple can pass on assets, including their home, of up to £1 million in total, free of tax.
Happily, my mother is still with us, but wants to understand how the situation from when my father died 20 years ago needs to be dealt with in light of today's legal requirements. Currently, I can see two possibilities but there are no doubt more.
Possibility 1: View all the trust issues and associated paperwork as notional, and work on the basis that she is entitled to pass on my father's £255k held in trust, plus the £175k that represents my father's main residence nil-rate band, plus her own amounts (currently £325k and £175k), free of tax. She still lives in the same house they both lived in.
or
Possibility 2: Did the creation of the £255k trust to safeguard my father's inheritance-tax-free amount somehow disrupt and therefore preclude my mother's ability to pass on my father's IHT nil-rate band, as well as his main residence nil-rate band?
I am not an expert by any means, which is why I am here and looking for help. I'm sure I'm not the first person ever to be in this situation and so I hope someone more experienced and knowledgable will be able to weigh in, with an informed view!
Thank you.
Comment