First-Death Capped Trust

For the general law, see Understanding trusts.

What it is#

A carve-out: a discretionary trust that takes a fixed, capped tax-free sum off the top of the estate on the first death - before the rest of the estate passes on - and holds it on a discretionary trust. Everything above that sum is dealt with by the ordinary residue clause or another trust.

Because it takes only a fixed amount off the top and doesn't absorb the residue, it can sit alongside any other residue arrangement - you can have a First-Death Capped Trust and a Discretionary Trust of the residue in the same will.

Who it suits#

• Couples who want to shelter a nil-rate-band-sized sum in a trust on the first death (for flexibility and protection) while still passing the bulk of the estate to the survivor.
• A classic "nil rate band discretionary trust" plan, brought up to date with the option to include the residence nil rate band as well.

Which will it goes in#

• Single wills - any number, each taking its sum before the residue.
• Mirror wills - any number, each set to apply to one spouse or both; the carve-out fires on that spouse's first death.

Add it as an order line ("First-Death Capped Trust"). It renders before the residue and coexists with any residue trust.

What you'll set on the form#

Trustees and beneficiaries#

The standard trustee and beneficiary settings apply - see the shared settings. The beneficiaries are the discretionary class of the ringfenced fund.

What to ringfence#

Setting	Choices	Default	What it does
Amount to ringfence	Nil rate band · Nil rate band + residence nil rate band	Nil rate band + residence nil rate band	Nil rate band ringfences the largest sum that can pass free of inheritance tax on its own (including any transferred band). Plus residence nil rate band enlarges the ringfenced sum to include the residence band (and any transferred residence band) too.

Tax options (all on by default)#

Setting	Default	What it does
RNRB section 144 read-back	On	Lets the trustees pass a home to your children or grandchildren within two years of death so the estate can claim the residence nil rate band.
Transferable nil rate band	On	Claims any unused nil rate band carried over from a spouse or civil partner who died first.
Taper mitigation (estate over £2m)	On	Lets the executors top up charitable gifts to bring a large estate below the £2 million residence-nil-rate-band threshold.

First-death only (mirror wills)#

Setting	Default	What it does
Only if spouse survives (first death)	On	Makes the trust take effect on the first death only ("if my spouse survives me…"). Turn off to have it take effect whichever spouse dies first. Ignored on a single will.

Good to know#

• This trust ringfences a money sum, not specific property or a business - so it never clashes with a gift or another trust over the same asset.
• It always takes its sum before the residue; additions come after.
• You can add more than one, and on mirror wills you can set each to a different spouse.