What should you do with your existing Wills with the Nil Rate Band Discretionary Trust & Common Myths with Wills


Cornerstone Wills December 2014 Newsletter on what should you do with your existing Wills with the Nil Rate Band Discretionary Trust & Common Myths with Wills

Welcome to our December Newsletter.  In this newsletter we discuss your options should your existing Will contain the Nil Rate Band Discretionary Trust. We also discuss common myths with Wills.

If you wish to to download the newsletter in PDF please click on the link below.


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What should you do with your existing Wills with the Nil Rate Band Discretionary Trust?

Over the last three to four months Cornerstone Wills have been visiting our existing clients and discussing their Estate Planning options and any changes to their current set up.

One key area of conversation has been the drafting and registering of Lasting Powers of Attorney and a second has been with regards to our recommendations for updating the Wills.

The Wills for these clients were drawn up prior to October 2007 when only one tax-free allowance (Nil Rate Band or NRB – currently £325,000) was used when it came to second death and the estate passing to the children. At that time we regularly drafted tax-efficient Wills to ensure that both NRBs were utilised by including the NRB Discretionary Trusts (NRBDT) in both Wills – allowing £130,000 more to be gifted to the children instead of to the tax man!

So what happened in October 2007? The Labour government introduced the Transferable Nil Rate Band meaning that 2xNRBs could potentially be claimed on second death (see our website for further details).

To date we have not recommended to our clients that the NRBDT be stripped out of every Will and revert to a basic (spouse-to-spouse mirror) Will as they do offer some level of asset sheltering (e.g. from remarriage, bankruptcy and long term care).

However, there are potential downsides to retaining the trusts within the Wills. For example, if the NRB was significantly increased after first death then you might end up paying more tax than with a basic mirror Will. Also, you might have been able to shelter more of your assets if the NRBDTs had been replaced with a more flexible trust.

At these recent appointments several options were discussed including a) retaining the NRBDT and b) removing the NRBDT and reverting to a basic mirror Will.

Both of these are usually dismissed in favour of this option: Remove the NRBDTs and replace with a Flexible Life Interest Trust.

With this type of trust the benefits are:

  1. As it’s a life interest trust in favour of the surviving spouse, there’s still no tax on first death
  2. You will still get 2xNRBs available on 2nd death – so there’s your tax planning
  3. The surviving spouse has access to the whole of the trust fund (like a mirror Will)
  4. Further tax planning is available to the surviving spouse after first death.
  5. The whole of the estate of the first to die is protected from 3rd party claims against the survivor.

Please contact Cornerstone Wills if you or your parents or other family members you would like to discuss further.

“Common Law” Myths

Research shows 61 per cent of the county wrongly believe that if a couple live together for five years or more they enter into “common Law” marriage and earn the same rights as those who are married.

The fact is “Common Law” marriage was abolished in 1753 and the two million cohabiting couples have virtually no legal protection.

Some of the myths are:

  • they have no automatic right to share in the family home if the relationship ends
  • no inheritance rights on the family home if their relationships ends or one partner dies without leaving a Will.

Please call us or visit our website for more help with this.