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Hi again.It is correct that the value of the life interest trust or interest in possession trust will be included in your mother's estate for IHT purposes when she dies. If she renounced her interest and the assets were distributed to the ultimate beneficiaries, that would be a potentially exempt transfer by your mother which would not fall out of her estate unless she lived for seven years after making it. Take a look at the notes on interest in possession trusts here.Is is possible to split the nil rate band between the life tenant's estate outside of the trust and the trust itself in proportion in circumstances such as those you have described.Your mother's second husband used his nil-rate band to make a transfer into the nil-rate band trust so that will not be available to be claimed by your mother's executors when she dies. However, the unused percentage of her first husband's nil-rate band as applied to the nil-rate band in place when your mother dies (not the one in place in 1993) will be able to be claimed by her executors. That could potentially double her nil-rate band to £650,000 and negate the IHT problem you referred to. Take a look here, here, here and here for more information.You ought to engage the services of a lawyer with tax knowledge or access to it to make sure you have matters arranged as effectively as possible.I hope this helps but let me know if you have any further questions.
Thanks for your reply - I will arrange for payment to be made. A couple of quick questions for clarification - the chances of my mother being around in seven years is slim - she is 83 and in ill health - can you clarify that if distributing the proceeds of the life interest trust to the beneficiaries reduces the liability of her estate if she passes away before seven years, or like life time gifts they become IHT exempt, if she lives more than seven years. Also just to clarify, the current nil-rate band is applicable to my father's estate not the rate set in 1993 (which was £150,000). Thank you for that.
Thanks for that - so 29 per cent of my father's nil-rate band was used up in 1993. From what I understand you are saying 71 per cent of the current nil-rate band will be available to use - that is to say 71 per cent of £325,000 which is £223,000