Q: When my father died eighteen months ago, he created a trust in his Will naming my mother, myself and my siblings and our children as beneficiaries. The trust is limited to his inheritance tax nil rate band, which I understand is currently £325,000. His executors/trustees (being myself and my siblings) have discretion to give any of the fund to any of the beneficiaries when they see fit, or we can hold the fund in the trust. My siblings and I are unsure whether we want the complication of administering the trust or whether we can bring it to an end. What are our options?
A: This type of trust is commonly known as a discretionary nil rate band trust. Such a trust does have its advantages, but as you say, administering such a trust can be complicated. You would need to take advice as to the tax implications in running such a trust and since October 2020, trustees are legally required to register their Trusts with the Trust Registration Service even if it is not a taxable trust. Whilst your father died before the requirement to register, you will still need to register unless you are intending to bring the trust to an end within 2 years.
Alternatively, you can bring the trust to an end by appointing trust assets out to the beneficiaries. Provided you do so within 2 years of your father’s death, you will be treated for both capital gains tax and inheritance tax purposes as if your father had made the gifts in his will and there will be no requirement to register with the Trust Registration Service.
You should not make any decisions without taking the appropriate legal/financial advice.
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