Discretionary will trust

By Tolley in association with Peter Gausden, Consultant Solicitor at Rowlinsons
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The following Trusts and Inheritance Tax guidance note by Tolley in association with Peter Gausden, Consultant Solicitor at Rowlinsons provides comprehensive and up to date tax information covering:

  • Discretionary will trust
  • Relief for appointments from discretionary will trusts
  • The property in the deceased’s estate must be settled by will
  • Property must cease to be relevant property
  • The distribution must be within two years of death
  • No intervening interest in possession
  • The distribution must be within the trustees' powers
  • Form of appointment under section 144
  • Capital gains tax

Relief for appointments from discretionary will trusts

If a will creates a discretionary trust (ie ‘relevant property’ trust) and within two years of death there is a distribution (or other event) which would otherwise have given rise to an exit charge because the property ceases to be relevant property, then:

  • there is no exit charge, and
  • the inheritance tax legislation has effect as if the will provided for the distribution

IHTA 1984, s 144

The relief gives a testator the opportunity to postpone decisions about how the estate is to be distributed by leaving it on discretionary trust. The executors / trustees can decide on the most appropriate distribution after the testator has died, without incurring exit charges because the assets have passed through a relevant property trust.

A discretionary will trust may be used to maximise reliefs and exemptions on death, depending on the circumstances arising at the time. Typical tax saving measures include:

  • appointing the whole estate to the spouse or civil partner, and allowing them to distribute the estate by means of potentially exempt transfers
  • appointing assets to the value of the unused nil rate band in favour of children with the remainder going to the spouse or civil partner. Appointments can include setting up trusts which can only be made on death; ie immediate post-death interest, trust

More on Changes to the distribution: