threesixty Says Calls to Tear up Will Trusts are Misplaced
threesixty, the fee-based IFA support services provider, says that calls for IFAs to tear up their clients’ will trusts following changes to the transferability of the nil rate band announced in the Pre-Budget Report are misplaced. But the vast majority of IFAs are still likely to need to conduct a major review of their clients’ will trust arrangements to assess whether the arrangements in place still produce the best outcome compared with using inheritance tax exemptions instead.
Alistair Darling, the Chancellor of the Exchequer, announced in the Pre-Budget that any unused part of the NRB of a deceased person should be transferable to their spouse or civil partner and available to be used at the time of the survivor’s death. The change will be beneficial to some estates, primarily those in which one partner has already died and did not make use of his/her nil rate band. The new rules will also mean an estate will be able to benefit from two nil rate bands, even if the first to die did not own sufficient assets to cover the nil rate band.
But a couple who have already received IHT planning advice and have incorporated a nil rate band trust within their wills need not hurry to rewrite them and rely on the new NRB provisions. This is because there are some advantages to using such trusts that are unrelated to IHT. For example, if the assets of the first to die are held within a discretionary trust – a type of NRB trust - then it will not be considered to be part of the survivor’s assets if social services review his/her ability to pay for long term care. Also, the trustees of such a trust would be free to pass assets to any of the beneficiaries if the survivor became subject to a lasting or enduring power of attorney, while the attorneys would be unable to make significant gifts or undertake proper IHT planning without getting judicial permission.
The IHT position is also unclear. If the first to die creates a nil rate band trust and the trustees achieve a rate of growth in excess of the nil rate band, the beneficiaries would be better off than if the monies passed to the survivor even though he/she had two NRBs available.
threesixty has produced a spreadsheet calculator available to its IFA clients to make the implications of the Budget changes easier to explain to their clients. David Ingram, a Partner at threesixty, commented: “Projecting growth and NRB rates should be a fairly easy calculation, albeit one that will need to be monitored in the light of increases to the NRB. The Chancellor has been working on increases in the band of around 4% per annum – although the pre-set increase in 2009/10 is a bit higher – so if advisers see a net return of more than this being probable then the will trust route will seem preferable. From a net amount to beneficiaries viewpoint, this comes down to compound interest. It is not just clients who already have a will trust who should look at these issues; considering a will trust should continue to form part of the advice process for all IHT exercises.”