When planning your estate and making your will, you might wish to include a trust for some of your assets. This could be for property or cash. There are several types of trust options when planning an estate, and one of those is a nil rate band discretionary trust or an NRBDT. This blog covers all you need to know about NRBDTs.

What is a Discretionary Trust?

A discretionary trust is a trust in which the trustees named have control over how the inheritance is spent. The trust document will outline the details of their involvement and duties, and regarding estates, the will acts as the trust document. It is often thought that trust documents are separate from the will, but that is not the case. Discretionary Trusts are created with the aim of providing for a future need. An example could be a beneficiary requiring more financial help than others. 

What is the Nil Rate Band Discretionary Trust?

The Nil Rate Band is the amount you can gift to beneficiaries without them incurring Inheritance Tax. The current threshold is set at £325,000 until 2028. NRBDTs are discretionary trusts that accept assets up to the NRB. The assets are legally owned by the trust rather than the beneficiaries, so they do not form part of the taxable estate. Usually, the named trustees would be the surviving spouse (if applicable) or the children, who can then access capital from the assets.

NRBDTs are not as common or necessary anymore since the introduction of the transferrable nil rate band trust; they are still used and deemed beneficial in some situations.

What can NRBDT Trustees Decide?

The trustees’ power will depend on what is stated in the will. Examples include:

• What and how money is paid out (in whole or in instalments)
• The frequency of payments
• Conditions on how the money is used
• Which beneficiary gets the inheritance

This means the trustee has control over who they pay, when and how, but the testator decides who the beneficiaries are. It is the duty of the trustee to act within the best interests of the beneficiaries, but they can also override them if they feel there is a valid reason. A Letter of Wishes can accompany the will and outline how the trust is to be dealt with. Although this is not a legal document, it can offer a guide.

For help with estate planning, contact Probate London on 0208 0171029.