The Residential Nil Rate Allowance (RNRA) and Discretionary Trusts - the impossible just became possible!

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?

ABSOLUTELY NOT!

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 minimise Inheritance Tax"

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 would happen if the Child I have nominated is going through a Divorce or Bankruptcy at the date of death or thereafter?

What happens if the Child is about to enter or has entered Long Term care or simply financially irresponsible?

Should we be advising our clients to “pick” someone now, potentially twenty, thirty, forty years before that gift will be effected, completely unaware of the what the circumstances will be at that point in the future?

SURELY NOT!

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!

Our new Trust ticks all of the boxes. The flexibility within two years of death to “pick the right person” but also with the security in knowing that if the Trustees are "sitting on their hands", the trust defaults for them, ensuring that the relief is never lost.

For more information on the new RNRA and our new "Super Trust", please view our webinar on:

Friday 7th April or Monday 10th April.

This will tell you all you need to know about the new legislation on the RNRA and how our new Flexible Family Trust works.

Topics include:

• Can your client still have the protection afforded by a discretionary trust and benefit from the RNRA despite the comments made by many daily newspapers.?
• Can people who have settled their home into an "Asset Protection Trust" (our PPPT) benefit from the RNRA?
• Are there any strategies whereby we can reduce the effect of the new Probate fees???

The webinar starts at 10am on both days. Click one of the links below to register.

Contact our systems team if you would like more information on our software packages, on 01926 514390 extension 9161 or [email protected]