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Residence Nil Rate Band (RNRB).

A new tax-free allowance was announced in the Summer Budget 2015 (the Residence Nil Rate Band) that will take effect on or after 6th April 2017.  Downsizing provisions have yet to be finalised.

There are a lot of myths and misconceptions surrounding this new allowance - please call or view our website pages (not yet updated) for further information - including:

  • everyone has a new allowance of £1M;
  • everyone can pass their home free of tax to their children

You may not get the full allowance (or double the allowance) if:

  1. your estate exceeds £2M
  2. you rent property
  3. you don't leave your property (or proceeds of sale) to the right qualifying people and in the right manner
  4. you are unmarried

WATCH THIS SPACE!

Family Trusts

Asset Protection Trusts or Spousal Bypass Trusts

Family Trusts are also known as Asset Protection Trusts or Spousal Bypass Trusts.  They are lifetime discretionary trusts that are created whilst you are alive and have numerous uses including lifetime gifting, protection of lump sum proceeds from life assurances, pensions and death in service benefits and can also be used to accept assets gifted via a will.

If any of your estate or the proceeds from any life assurances, pensions and death in service benefits are paid directly to your nominated beneficiaries – whether or not this is a spouse, partner, child or family member – then the funds they receive from you will be included with their own estate if and when they are assessed for long term care or other state benefits.

By directing the funds to one or more Family Trust instead we can ensure that our beneficiary will still have access to the funds but that they won’t be assessed by the Local Authority for payment of long term care costs or reduction/removal of state benefits and any remaining funds pass onto other people you might also wish to benefit from the funds.

Family Trusts – used with life policies, pensions and death in service benefits

In today’s sophisticated financial market, many people have death-in-service benefits (DISB) through their employment or death benefits via their pension scheme.  These benefits are generally nominated in favour of the surviving spouse or partner (written in Trust) so are not treated as assets of the deceased’s estate.  But there is a potential problem should the surviving partner/spouse or other nominated beneficiary then need long term care.

Generally speaking most couples nominate their DISB to be paid directly to their spouse or partner and then possibly to their children – but that is as far as much advice goes.

Once the benefits of the policy have been paid out to your nominated beneficiary they become an asset of their estate.  Subsequently, when the recipient of the funds then enters long term care they will be assessed for payment of or contribution to the costs.  Your DISB will undoubtedly take them above the threshold meaning that potentially all your DISB could be lost with none passing onto future generations.

This problem can be avoided by nominating the DISB or pension death benefit into a trust.  The trust is held outside the survivor’s estate; (and therefore not subject to assessment by the Local Authority).  However the survivor can be a beneficiary of the trust and receive funds at the discretion of the trustees.  Even more beneficially the trust can be drafted with power to loan monies to the survivor.  As a result the survivor will have the full use of the funds to invest or spend, or live off the income as they see fit.  However, as a loan has been made from the trust a liability has been created which can be paid out of the survivor's estate on their death thereby enabling it to be passed on tax-free to future generations.

Family Trusts are not limited to death in service benefits and pension benefits.  They can be used in conjunction with any form of life insurance.  Therefore anyone with any type of term life insurance or mortgage protection insurance should consider placing the benefit of the policies into such a trust.

Family Trusts – for business or agricultural assets

The Family Trusts can be created now to receive specific assets passed into them by your Will such as business or agricultural property that qualifies for 100% Business Property Relief or Agricultural Property Relief.  Should these assets subsequently be sold then the proceeds of sale will be held in trust outside of the estate and therefore not assessable by the Local Authority.

Family Trusts – for your estate

The Family Trusts can take a portion or even the whole of the estate of the deceased via their Will.  It doesn’t, however, reduce the inheritance tax take on your death but does protect the estate for your beneficiaries from:

  • The inheritance tax take on your beneficiaries’ deaths;
  • Claims against your beneficiaries’ estates from divorce, long term care costs, bankruptcy, etc.

We can draw up a "made to measure" trust for you incorporating the appropriate powers tailored to your own personal circumstances.  Click here to download a PDF with further information and a case study.