Before October 2007, it was standard practice for married couples with estates large enough for inheritance tax to be an issue to include nil rate band discretionary trusts (NRBDTs) in their Wills. Otherwise, it was difficult for both spouses (which term is used here to include civil partners) to use up their nil rate bands (NRBs). This was because:

1. •

   if the first spouse died leaving the whole of their estate to the other, there was no inheritance tax to pay because of the spouse exemption

2. •

   however, the first spouse to die had ‘wasted’ their NRB, because the combined estate would be taxable on the second death, but with the benefit of only one NRB (ie that of the second spouse to die)

The NRBDT was a useful device which enabled the first spouse to die to use their nil rate band yet still provide for the survivor to benefit from the assets via a discretionary trust.

The arrangement works as follows:

1. •

   the Will of each spouse contains