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Discretionary Will Trusts

Until 9 October 2007, it was generally received wisdom to have a nil-rate-band discretionary trust written into your will.  Not any more, and all such wills now need an urgent review.

The idea was to avoid wasting the nil-rate band (currently £300,000) of the first spouse to die who might otherwise leave everything to the survivor.

From 9 October 2007 the surviving spouse (or registered civil partner) will be able to use any unused proportion of the nil rate band from the first death on making a simple claim.  Note that you would benefit if the nil-rate band had increased between the two deaths.

So have all discretionary will trusts (DWTs) had their day?  The simple answer is “no”, but it does now depend on the type of property you intend to put into it.

Suitable assets for a DWT are

1. Assets which are 100% exempt from IHT as either Business Property or Agricultural Property.
2. Assets which you believe will grow at a faster rate than the nil-rate band increases.  It is currently £300,000.  The Conservatives have already floated the idea of increasing it to £1,000,000.
3. Assets where you wish to give the benefit of the income and/or capital to certain people whilst at the same time keeping control in the hands of (professional) trustees.

Do bear in mind that lifetime trusts are very much back on the agenda now.  This is because we will not need to hold the asset 2 years to secure the best CGT rate as used to be the case.

In summary, contact Robert Peel at rpeel@garbutt-elliott.co.uk to review your IHT position, because these changes could affect you.