NIL Band transfers

[navigator61]

Just doing a review of our mirror wills and I notice that prior to the clause distributing ALL of the residuary estate to the respective spouse the whole estate is gifted to the executors/trustees to deal with expenses and then to distribute legacies. My question is could HMRC argue that the gift to trustees is using all or part of the nil-band allowance? Our intention is that none of the nil-band is used and would be transferred to the survivor's estate when they pass. Very grateful for any advice as to how such executor/ trustee clauses might affect this.

[PallasAthena]

Can you quote us the exact wording as it appears in the Will please.

[navigator61]

Can you quote us the exact wording as it appears in the Will please.

Thanks for your reply - here is the wording in the will "I GIFT all my real and personal estate to my TRUSTEES to use for payment of my just debts, funeral and testamentary expenses and any legacies declared earlier and all taxes due in respect of my estate and to distribute my Residuary Estate as follows:" To clarify, this clause follows a specific legacy that is only to be distributed should the spouse not survive the deceased.
Should the spouse survive then the ALL the residuary estate goes to them. Also, in each of the wills the spouse is named as executor with substitutes should they not survive the deceased.

[Frank1]

What do the wills state about the residuary estate when the surviving spouse dies?
The substitute executor pays out the stated legacy or legacies before doing what with any residuary?
What should the substitute executor do if there is insufficient funds left in the estate to pay the legacies?

[navigator61]

What do the wills state about the residuary estate when the surviving spouse dies?
The substitute executor pays out the stated legacy or legacies before doing what with any residuary?
What should the substitute executor do if there is insufficient funds left in the estate to pay the legacies?

There is one specific legacy of property conditional on the deceased being its sole owner at the time of death. Prior to the death of either spouse the property would be in joint ownership. should the property have been sold at the time of death (highly likely as it is a second home) then there will be no legacy to distribute before dealing with the residuary. There are no pecuniary legacies.

[Frank1]

As the second home is owned as joint tenants, the surviving spouse will become the sole owner.
Is the intention that this property is put into trust, the executor and trustee (the surviving spouse) maintains the property for the benefit of the eventual beneficiary of the property?
Do the terms of the trust state the trustee can sell the property if they so wish? Or are there special reasons listed allowing the sale?

[Frank1]

Perhaps when the will was drafted there was the possibility that a residuary beneficiary could still be under 18? Their share would need to be held in trust until they are 18.

[navigator61]

As the second home is owned as joint tenants, the surviving spouse will become the sole owner.
Is the intention that this property is put into trust, the executor and trustee (the surviving spouse) maintains the property for the benefit of the eventual beneficiary of the property?
Do the terms of the trust state the trustee can sell the property if they so wish? Or are there special reasons listed allowing the sale?

I think your your post above highlights a flaw in the existing will. There is no intention now to create a trust following the death of the second spouse. On the death of the first because the property is jointly owned it transfers to sole ownership of the survivor. The intended distribution of property if it still exists in ownership when the second spouse dies does not involve or require a trust. We will ensure the redrafted wills do not create trusts.

Still, interested to know if the transmission of an estate via a trust would affect the treatment of legacies by HMRC on the NIL band allowance, its transferability to a survivor and IHT.

[Frank1]

As it stands the full £325k NRB remains transferable

When the surviving spouse dies and if they are still the owner of it, the propertyvalue will be added to their estate. If the surviving spouse sells the property, as it is not their main residence, they will be responsible for paying CGT (assuming the property has increased in price since it was purchased).

If the property was put in trust and the trustee either transfers or sells it on behalf of the beneficiary, the trustee would be responsible for paying any CGT.

[navigator61]

Thanks for your replies. Wills are going to be updated so that a trust is not created for this property. The property in question is in France which is why I have been reviewing our wills as, following a recent response by the French gov to an EU Complaint re. Brussels iv, we needed to make sure our choice of law clause was unambiguous. Thanks again for your posts.