Posted on Aug 15, 2016
It is estimated that the Duke leaves a fortune of around £9 billion and that much of that wealth is held in trust. Although the Duke benefitted from the assets during his lifetime he didn’t own them and so his estate won’t pay inheritance tax on these assets as a result of his death.
There is an assumption that trusts are only for the wealthy but this is simply not the case.
Many families choose to place assets in trust to protect them for future generations or to protect beneficiaries who may not be able to deal with owning such assets outright whether due to incapacity, mental health issues or addiction.
Discretionary trusts are commonly used as they provide flexibility by allowing trustees to determine when and how assets are distributed to a wide class of beneficiaries. None of the beneficiaries have a right to these assets and so they are not included as part of their estates when they die.
Trusts can also be used for inheritance tax planning. Many couples are keen to reduce their estates for inheritance tax purposes but reluctant to gift outright to their children. Outright gifting may not always be appropriate, depending on the child’s circumstances. The setting up of a trust and gifting into that trust is a good way of addressing concerns regarding inheritance tax and retaining an element of control.
Grandparents wishing to reduce their estates for inheritance tax may choose to set up a trust to benefit their grandchildren.
Since the Finance Act 2006 most trusts fall within the relevant property regime and are taxed at certain points during the lifetime of the trust. Charges occur when assets enter the trust (at the lifetime rate for inheritance tax of 20%), on each tenth anniversary of the trust (a charge of around 6%) and when assets leave the trust (a charge similar to the ten year anniversary charge).
However, a trust with assets below the nil rate band at the ten year anniversary will not be charged and assets entering a trust, if below the nil rate band, will be a gift by the truster (the person setting up the trust) which will fall out of their estate for inheritance tax purposes seven years after that gift is made. In addition, there are certain exemptions and reliefs from inheritance tax for business property and agricultural property which mean that some trusts can contain more than the nil rate band and not pay inheritance tax.
Such trusts can be incorporated within your Will or set up during your lifetime.
Lorna Goodfellow is an Associate in our Private Client team. If you have any questions about asset protection, Trusts or Inheritance Tax, please contact Lorna on 01382 229111 or email firstname.lastname@example.org or contact a member of our Private Client team.
Categories: Private Client