But you need to be careful of losing entitlement to the residence nil rate band/transferable residence nil rate band when placing some or all of a residence into a discretionary trust on first death. Done correctly trust planning can protect against such loss by writing the trust in a specific way (often by way of a flexible family trust)
If a surviving spouse or civil partner needs to go into a care home, quite often the family will need to sell the family home to pay the care fees. By putting a share of the property into trust you could protect the family home as the trust ring fences that amount and takes it out of the surviving spouse or civil partner’s estate for means testing by a Local Authority.
Nil-rate band discretionary trusts can also be used to protect assets that are intended to go to particular beneficiaries (i.e. children from a previous relationship) in the event that the survivor remarries. A discretionary trust is one whose trustees have discretion about how to use the income generated by the assets placed in trust and how eventually to distribute assets to beneficiaries.
Trust created after the first death
If spouses or civil partners whose families would benefit from such a scheme do not take the necessary steps before the first death, the surviving partner and their family can enter into a deed (often called a deed of variation) to create one.
The deed will vary the disposition of the property comprised in the deceased’s estate that has already taken place at the time of the death – whether effected by will, under the law relating to intestacy or otherwise (for example, under a right of survivorship in respect of joint property) – in order to put the appropriate scheme in place before the first death of a joint spouse or partner.
Provided this is done within the period of two years after the first death, tax law treats the arrangements as if they had been made by the partner who has died. This certainly provides a valuable safety net for those who have not taken the steps necessary prior to the first death.
Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate wills or trusts.