If you are looking to make the most of your tax allowances and manage your estate’s exposure to Inheritance Tax (IHT) through the making of lifetime gifts, then perhaps establishing a UK discretionary trust is an option you may wish to consider.
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By way of background, the Nil Rate Band is the value of assets that a person can pass to another free of IHT and as such will not form part of their taxable estate on death dependant on certain criteria being met. As HMRC put it, a Nil Rate Band Trust is:
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 those assets among a class of potential beneficiaries.
A nil-rate band discretionary trust is a version of such a trust used in estate planning to reduce liability to Inheritance tax on the death of a surviving joint proprietor. It is commonly used in areas where residential property prices exceed the Inheritance tax threshold, with the additional aim of avoiding the need to sell the family home to meet Inheritance tax liability.
Such a trust can also be used to protect assets that are intended to go to particular beneficiaries (eg children from a previous relationship) in the event that the survivor remarries.
It can also protect assets that otherwise could be liable to means testing if the survivor had to go into long-term care, or could be vulnerable to creditors if the survivor got into financial difficulties.
A PET is usually a lifetime gift or a transfer which can be of unlimited value and is an outright gift. The individual making the gift must survive for 7 years after making the gift for it to become exempt, hence why it is a Potentially Exempt Transfer. If the individual survives the 7 years it will not be brought into the calculation for Inheritance Tax.
A CLT is a gift such as a transfer in to a UK Nil Rate Band Trust and these can be made during a person’s lifetime and will become immediately chargeable to Inheritance Tax. That is not to say that there is an immediate tax charge and subject to any gifts made in the previous 7 years and the value of these gifts there may be no IHT due on the transfer. Subject to any gifts you may have made, you are currently able to make a CLT into a discretionary trust to the value of £325,000 every 7 years without trigging a tax charge.
Access for the surviving spouse to funds during probate.
Allocation of assets for specific persons free of probate.
To avoid the need to obtain probate (or letters of administration) on a deceased person’s estate, thereby enabling those assets, if necessary to be dealt with immediately upon that person’s death.
Providing for children from a previous marriage.
Protection of assets and to provide for future generations of the family.
To protect a person’s assets from a claim by the local authority in respect of provision for care home fees.
Controlling the manner and timing of a child’s inheritance.
No requirement to advise the beneficiaries of their potential interest
Protection from the claims of ex-spouses.
The ability to benefit from the trust by way of loan or loan repayments.
Despite the introduction of the transferable nil rate band in 2007, there are still very good reasons for using a nil rate band trust. In particular, the trust can extinguish a number of potential threats. For example, after the first death, the survivor may remarry or become incapable of managing their own finances, or there may be concerns about savings being utilised to pay for care. Trusts can provide a solution to all these threats, whereas if funds are left by way of outright legacies this often leaves an individual’s wealth exposed.
A trust can provide an essential safety net for heirs so that their inheritance is much better protected in the event of matrimonial or financial difficulties. Another considerations is that people may be looking for a way to provide for disabled heirs whose means-tested benefits might be lost on receipt of an inheritance.
Trust planning need not be thought of as the preserve of the super-rich. Trusts continue to be widely employed even in relative modest estates and are an accepted feature of the IHT planning landscape
Thought must also be given to the nature of assets in the individual’s estate and a UK Discretionary Trust has the ability to hold an extremely diverse range of assets.
We continue to live in unpredictable times, and trusts are an excellent way of coping with changing circumstances and tax legislation. As ever it is vital that the right trustees are chosen and that they are fully appraised of the testator’s intentions.
Adjure Global Trust Corporation Limited is a specialist provider of onshore trust services and whilst we cannot provide you with legal, taxation or investment advice we would be delighted to answer any questions you may have on how a UK Discretionary Trust may benefit you.
Contact us using the form below and we will follow up to discuss your requirements in more detail.
You will then need to complete our online application form.
A Trust Deed will then be sent to you for signing.
The assets to be held by your Trust will be transferred to it.
These assets will then be held and managed by your existing trusted investment advisor.
Adjure was borne out of a top UK accounting practice and has been administering trust and corporate arrangements for over 10 years and is trusted by families around the globe to look after their wealth. We have offices in London, Guernsey, Switzerland and Mauritius and our qualified staff have many years of experience in administering the intergenerational assets and investments of UK and global families.
We are not tied to any investment advisor allowing you the flexibility of investing your trust’s assets with your usual financial advisor, leaving the choice to us and let us introduce you to a range of advisors or pick one of a number of pre-approved investment funds. You can even transfer your existing investment portfolio. Our aim is to keep the process as simple as possible and to protect your assets for your family or chosen beneficiaries.
Complete the form below to register your interest today.
