Loan trust
sch0501
Member
Morning all,
We have a couple who were unmarried for many years, and has an IHT liability therefore the adviser originally set up a loan trust for each of them (c.£400k each), with the loan to be waived on death. However, they have since decided to get married (in their 90s no less!!!) and both myself and the adviser are trying to figure out how this would affect their transferable nil rate bands. My immediate thought is that this will use up their individual nil rate band, thus meaning that there will be no transferable NRB to use.
The 2nd consideration is that they want to make gifts to their three children on 1st death up to the value of their nil rate band, so would it now be better to do that using the proceeds of the trust rather than out of normal assets? Again, my instinct is that it would be as the NRB will already be used up by the gift of loan on death to the trust.
@les_cameron be interested to hear your thoughts
Comments
Here they are
Loan Trusts are next months webinar - https://www.mandg.com/wealth/adviser-services/tech-matters/events-and-cpd/loan-trusts-unlocked
And...
The waiving of the loan is a gift on death. It is a chargeable gift as it's not an exempt transfer as it's not going to spouse/charity. Will use up all NRB. So the estate will have a bit of IHT as it's over available NRB. No NRB to transfer.
The children are presumably trust beneficiaries so hasn't the waiving of the loan actually achieved the objective already? Used up NRB with money available for children? And better as it's not in their estate for IHT/failed marriages/means testing/bankruptcy etc
PS - were either married before and widowed? Check out wills to get extra NRBS available.
PPS - the immediate waiving of some of the loan using unused annual exemption could save them up to £2,4000 of IHT each just by signing a piece of paper.
PPPS they are very old, if they are trustees you may want to discuss getting them replaced before they lose capacity when everything will snarl up.
Sounds like objectives met by luck over design!
Thanks Les.
The Loan trust was originally set up to gift the money to his partner on death as they never intended getting married, but obviously now are which means that the waiving of the loan will use up his NRB instead of being able to transfer this to his now wife.
Although building on what you said RE: the children, maybe it would be better to write a new letter of wishes so that the children benefit from the loan rather than the wife?
Apologies for some of the vagaries, I have not had involvement in this, the adviser just put this to me on Friday. So possibly I have missed something!
The loan has already been waived on death so writing the letter of wishes along the lines of I have written off the loan when I die it is my wish that the value of the outstanding loan is split between x,y and z seems to be feasible. ( And check they are actually beneficiaries within the standard class.)