Hints for the unwary executor

After someone has died, executors often start by looking on the internet for information on how to obtain probate and administer an estate themselves. But is this really a good idea?

Until 2007, when the first of a married couple died, they had to use their inheritance tax-free allowance (currently £325,000), known as a nil rate band (“NRB”) at the time of that first death – or lose the allowance altogether. Therefore wills usually included a trust, known as a “nil rate band discretionary will trust”.

In 2007 the inheritance tax rules changed

In 2007 the inheritance tax rules changed, and now if the first of a married couple passes their entire estate to the surviving spouse, then on the second death their executors can claim both their own NRB and that of the first person to die.

But not everyone updated their wills and so many wills still have the nil rate band discretionary will trusts in them.  The inheritance tax rules in place today say that if the will trust is not closed down and wound up by a formal deed within two years from the date of death, then the trust comes in to existence, the NRB amount from the estate is used in this trust and cannot be claimed on the second death.  Also, a discretionary trust is subject to inheritance tax every 10 years and so if it is not formally wound up, the executors can be liable to pay this inheritance tax with no assets to pay it with. 

If you are acting as an executor of a will with these sorts of provisions in it, you should think about meeting with a legal professional to see if you might need help in dealing with the trust correctly.

Paytons Solicitors April 8th, 2019

Posted In: Blog