DISCRETIONARY TRUST WILLS

We no longer recommend Discretionary Trust Wills

Following the Chancellor’s announcement of a doubling of the Inheritance Tax threshold for married couples and civil partners in 2007, there was no longer any IHT advantage to making a Discretionary Trust Will if you were married or in a civil partnership, because what you were trying to do - i.e. use both IHT thresholds - now happened automatically.

The IHT advantages for couples who were not married or in a civil partnership of having Discretionary Trust Wills (i.e. making use of both IHT thresholds) remained because the new legislation had no effect on the IHT threshold for un-married couples.

Therefore we recommended that there was no immediate need to change if you were married and had made Discretionary Trust Wills or in a civil partnership, and that there was still a benefit to making Discretionary Trust Wills if you were not married.

HOWEVER, now that the Residence Nil Rate Band (the ‘RNRB’ - see our Inheritance Tax page) has come into effect then making Discretionary Trust Wills actually becomes counter-productive for IHT.

This is because the RNRB only applies where the property is left on trusts where the descendant is treated as owning the asset. With a Discretionary Trust this is NOT the case: any benefit (or ownership) is at the DISCRETION of the Trustees.

This means that if you make Discretionary Trust Wills then you will LOSE your use of the RNRB.

We therefore no longer recommend Discretionary Trust Wills and strongly advise all of our clients who have made Discretionary Trust Wills to change them to normal Mirror Wills.