Whilst we can all leave an unlimited amount of asset value to a spouse or Civil Partner when we pass away, there is a limit to the value we can leave to others (including un-married partners), before those beneficiaries will need to pay Inheritance Tax (IHT).
This individual IHT Nil Rate Band is £325,000 in tax year 2014/15 and it may change from year to year, as determined by government policy.
For those having a larger estate, this type of Discretionary Trust allows a variable amount, up to the prevailing Nil Rate Band at the time, to be protected for the benefit of certain beneficiaries; perhaps with the balance left to a surviving spouse/partner.
Here, the Executors/Trustees will determine the assets used towards the Trust, when administering your Will, to ensure the prevailing threshold is not exceeded. This avoids the danger of specific assets, such as a share of a property, unexpectedly rising in value above the threshold; which could otherwise give rise to an unintended IHT bill for your beneficiaries.
The inclusion of an IHT Nil Rate Band Trust may enable a surviving spouse, or partner, to reduce any liability to IHT upon their own Estate, thus adding further to the protection of the interests of your children.
This Trust arrangement may also limit the scope for local, or government, agencies seeking to acquire the assets of a surviving partner/spouse in the event they should require long term care in later life. If nursing care becomes necessary, it may thus be possible to protect, for their beneficiaries, more of the value they have worked hard to accumulate in their Estate.
In the event that a surviving partner were to re-marry after the first death, such a Trust could ensure their next spouse does not have access to the deceased partner's share, thus safeguarding their children's inheritance.
