The Residential Nil Rate Allowance (RNRA) and Discretionary Trusts
The Impossible just became possible... and it's now included in our Software
Have your clients used Discretionary Trusts in their Wills? Or do your clients want to include Discretionary Trusts in their Wills?
Several newspapers and Solicitor's articles have suggested that these clients will need to urgently review their planning or not be able to benefit from the new Residence Nil Rate Allowance (“RNRA”).
So, should we be frantically advising our clients to scrap their Discretionary Trusts? Is it impossible for clients to benefit from the protection of a Discretionary Trust AND benefit from the new RNRA?
After months of speculation and panic, we have been told that the RNRA will (in most circumstances) only be obtained if a client leaves a share of their property to a “lineal descendant”, in most cases this will be a child/children.
We have been told time and time again that a client leaving their estate to Discretionary Trusts will not satisfy these requirements and therefore ensure that the client will lose out on this new IHT relief. Partly true, but only in the event the estate and its beneficiaries don't have professional experience at hand.
"I don't want to lose out on a legitimate relief and the possibility of
We would be led to believe that the only way to proceed is to instruct a client to leave a share of their property to a “Lineal Descendant”, ensuring that on their death that share of the house will belong absolutely to that person (normally a child)?
But what alternatives do we have?
We have been told that Discretionary Trusts are no longer a viable option, this is because in order to benefit from the RNRA we need someone to “inherit” that share of the property absolutely. Finally, as late as March 2017 HMRC have confirmed that the RNRA would apply where the asset transfers to a Trust and there is Qualifying Life Interest or Interest in Possession.
So how do we maintain the flexibility and protection that a Discretionary Trust offers whilst ensuring that our clients do not miss out on the RNRA?
One less reported aspect of the RNRA and its impact, is how the Trustees can benefit from a strategy in a little known section of the Inheritance Tax Act 1984 (Section 144) which gives the Trustees the power to make their choice later, and decide who is best to inherit within two years of a death. Two years to pick and choose the best person to receive this new RNRA allowance, that person most likely being the youngest member of the family.
But what if the Trustees forget?
Some clients choose their Spouses to be their Trustees, others choose their children and some may pick “John” from down the pub. Are these Trustees likely to know that they have two years to jump into action, probably not?
So we shouldn’t risk using Discretionary Trusts, hoping that the Trustees will miraculously remember to do their job. There is much merit in that argument.
The New Flexible Family Trust
What if we were to offer the client a Discretionary Trust that means they do not have to “speculate” who would be the best person to receive the RNRA at the time they make their Will? A Trust that gives the Trustees a chance to choose the best person at the date of death, BUT also ensures that if the Trustees neglect to do so, the allowance will be received REGARDLESS, by default in the terms of the Trust.
We therefore present the NEW FLEXIBLE FAMILY TRUST!
With the new RNRA changes in place, we have developed the following products to ensure your clients have the most flexible planning whilst still qualifying for the RNRA:
- Nil Rate Band & Residence Nil Rate Band Discretionary Trust within the Will
- Discretionary Trust of Residue (including Residence Nil Rate Band) within the Will
With just the Essential Package, you are able to generate / order these products now!