This information is based on an article, also written by Bob Cullen, published in ‘Personal Finance Professional’ magazine
Not everyone is aware that inheritance tax may be paid on assets even where an estate is under the threshold. That is because the estate may, when passed on to the next generation, either cause IHT to be payable on their estates or, if the beneficiaries are already liable to IHT, increase the amount payable. However, while the additional tax is paid from the children’s estates it is really the parent’s money on which the additional tax is payable and where a solution can effectively be applied.
Also, where inheritance tax is payable on an estate people often don’t consider that it may not be the total extent of the tax HMRC take. That is because, as explained above, once it is part of a beneficiary’s estates tax will be calculated again. Their spouse is probably also due an inheritance which may push their joint estate into the IHT trap even if you think there won’t be a problem. So even where tax has already been paid it may become taxable again. And at 40% again.
There is a solution often used by well informed families who take wealth and asset protection seriously. Not everyone knows about it but it is tried, it is tested, it is not expensive. And it works.
It may be very much worth your while to read the rest of this page. You can also download a copy of our booklet “Tax Planning: Essential Reading” from the link below or simply call our Helpline for a free initial consultation to see if this is something that may be appropriate for you.
You may download our “Tax Planning: Essential Reading” booklet by clicking the button below.
Call the Helpline for a no obligation chat to discover how this might benefit your own family” Bob Cullen ASWW
They have had their cake, they have eaten it and returned it to the cake tin to be eaten again by their children and their children’s children. The Trust can last up to 125 years giving plenty of scope to save tax for the family.
Special provisions can be set up in the Will of each spouse/partner so that separate independent Trusts can be set up from their individual estates. The separate Trusts each have their own tax threshold which will maximise the tax savings. The trusts give your family the opportunity to act on appropriate professional advice in order to plan the distribution of family wealth as effectively as possible. Your beneficiaries then have the opportunity to monitor their personal inheritance tax liability and to take their inheritance as a loan or series of loans to be repaid back into the trust at their death (effectively passing the benefits of the Trust to yet another generation).
The Trustees would have the power to set up a different Trust or Trusts, dictate the terms of those Trusts and then transfer the funds into them if legislative changes made the original Trusts less effective. This could be done for one or all of the beneficiaries or a beneficiary’s share could simply be given to them if the circumstances of that particular family did not require a Trust. If a beneficiary had set up their own family Trust then that beneficiary’s share could be transferred into it.
The trust would also help ring-fence a beneficiary’s inheritance against possible divorce or bankruptcy. This is possible because the benefit of a discretionary trust with multiple potential beneficiaries is that not one penny forms part of the personal estate of any individual. Even money they arrange to receive from the Trust is not part of their estate if it is granted as a loan.
It is an incredibly flexible arrangement due to the powers granted to the Trustees under the special Trust terms. And it can be included in any Will.
The trust can run for up to 125 years but can be terminated at any time if appropriate. Trustees have the power to appoint other trustees and that power should be used to appoint those who will carry on the trust. It is often appropriate to appoint beneficiaries.
The beneficiaries will, ultimately, be separate households whose situations and goals may differ. It may cease to be appropriate for there to be a single trust for all beneficiaries especially when it comes to the trust passing to a further generation. The authority given by the trust for trustees to set up further trusts and to determine the nature and terms of those trusts allows alternative trust arrangements to be used if either legislation, taxation or the circumstances of the beneficiaries change sufficiently to warrant it. This can be a major advantage.
The trust allows advantage to be obtained depending on the actions taken under its flexibilities. Any inflexible solution may prove to be inappropriate and costly. Instead, flexibility is what is needed because we really don’t know what the future will bring. It is essential that advice is sought following death when setting up the trust and that all arrangements are regularly reviewed. The savings can be substantial.
You may well have some questions after reading this information. In fact, I shall be very surprised if you don’t. Please contact me on the Helpline for a no obligation chat about how these arrangements might be of benefit to yourself and your family.
Bob Cullen ASWW
You can download a booklet with this information by clicking the button below