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Manchester Conveyancing Solicitors Property Lawyers | Ford Banks Irwin Solicitors in Manchester on Fees for Selling / Buying a House / Flat / Apartment. 

 
Please note: Not to be used or relied upon without legal advice. These notes are for illustration purposes ONLY
   
   
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Discretionary Trusts 

Definitions:

'beneficial joint tenancy' means the joint ownership of Property by two or more people, each of who is entitled to the whole Property, rather than to an undivided share in it.  When one of them dies, the others are automatically entitled to the deceased owner's share of the Property, whatever any Will may say.

'tenancy in common' means the joint ownership of Property by two or more people, each of who has a notional, although undivided, share in the Property. When one of them dies, their share may pass under their Will.

'IHT' means Inheritance Tax

'standard form restriction' means one of the restrictions set out in schedule 4, Land Registration Rules 2003.


What is a Nil-rate band discretionary Trust?

A discretionary trust is one whose trustees have discretion about how to use the income generated by the assets placed in trust and how eventually to distribute those assets among a class of potential beneficiaries.

A nil-rate band discretionary trust is a version of such a trust used in Property planning to reduce the liability to Inheritance Tax on the death of a surviving joint proprietor. It is commonly used in areas where residential Property prices exceed the Inheritance Tax threshold, with the additional aim of avoiding the need to sell the family home to meet Inheritance Tax liability.

Such a trust can also be used to protect assets that are intended to go to particular beneficiaries (eg children from a previous relationship) in the event that the survivor remarries.

It can also protect assets that otherwise could be liable to means testing if the survivor had to go into long-term care, or could be vulnerable to creditors if the survivor got into financial difficulties.


How does the Trust work?

Trust created before the first death of a joint proprietor:

If any Property to be involved in the trust is not already held under a tenancy in common, the proprietors sever their joint tenancy.

Each spouse or civil partner makes a Will leaving a bequest / gift equal to the value of an individual's Inheritance Tax exemption (the nil-rate band) which, on the first partner's death, will pass not to the surviving partner but to trustees who will hold it under the terms of the trust, also created by the Will, for a class of discretionary beneficiaries, usually including the surviving partner and the children and / or grandchildren of the family.

Normally, the surviving partner can benefit from the trust by receiving discretionary payments or loans from the trustees.

When the surviving partner dies, the Property held under the trust does not form part of their estate, and the surviving partner's beneficiaries save the Inheritance Tax that would have been payable on its value.

By contrast, if the  joint proprietor holds the Property as beneficial joint tenants and makes no discretionary trust arrangements in their Wills, after the second death of the whole estate will pass to the survivor's heirs, subject to Inheritance Tax.  The Inheritance Tax position will depend on whether both nil rate bands can be utilised at this stage.

Inheritance Tax rules change routinely and specialist advice should be sought on each occasion and the plan regularly reviewed.


Trusts created after the first death:

If spouses or civil partners whose families would benefit from such a scheme do not take the necessary steps before the first death, the surviving partner and their family can enter into a Deed (often called a Deed of Family arrangement) to create one.

The Deed will vary the disposition of the Property comprised in the deceased's Property that has already taken place at the time of the death - whether effected by Will, under the law relating to the intestacy or otherwise (for example, under a right of survivorship in respect of joint property) - in order to put the appropriate scheme in place and permit the Inheritance Tax savings.

Provided this is done within the period of two years after the first death, tax law treats the arrangements as if they had been made by the partner who has died (Section 142 Inheritance Tax Act 1984).

 

(All italics in this page are Crown Copyright and reproduced here for your information with permission from HM Land Registry)

. . . continued on page 2 (Manchester Conveyancing Solicitors Property Lawyers on Fees for Buying / Selling a House / Apartment / Flat 2)

Please telephone Paul on 0161 866 8999 if you require any further information.

                       
    

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Ford Banks Irwin Solicitors
50 Stothard Road
Stretford
Manchester
M32 9HB


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