Trusts & I.H.T

Trusts, I.H.T Planning & Protection Of Property

If you want to protect your estate, you have a number of options to consider. Both for while you are still here and for after your death.

  • Trusts – To set any of your assets in Trust, with/out conditions of access.
  • Inheritance Tax Planning – Taking advantage of Annual Allowance on Gifts, Lifetime Gifts and Trusts.
  • Property Protection – Against potential medical costs.

The purpose of the information we give is to let you know what you should be considering and how to arrange your estate, You will need Professional Representation to arrange any of these.

Trusts

There are different types of Trusts.  Each have similar and different uses.  All trusts allow you extra protection and set conditions of access over your assets once you pass away.

When used correctly they can protect you, your family and future generations.

However due to their complex nature, Specialist Advice is needed.

To understand the basics of Trusts, when they are beneficial, and how to set them up. You need to know what they are and who is involved in running them. Like Wills there are a number of roles involved in running a Trust.

The Settlor

Sometimes known as the Grantor / Donor / Trustmaker or Trustor. Its the person putting the assets into Trust

The Executor

Oversees the management of the estate on death and ensures the deceased’s wishes are adhered to.

Trustees 

Are responsible for the management of the Trust in accordance to the Trust parameters. They can be family members or independent third parties.

beneficiaries

Are the recipients of the Trust assets. Subject to the Trust Rules. Living Trusts mean that the Settlor can also be a Beneficiary.

Trust Protector

Are optional, they over watch the Trustees management of the Trust in accordance to the Trust rules. Usually an Independent Third Party.

Trust Types

 

Assets are put into Trust whilst still alive and have control of them. You are classed as the Principle Beneficiary.

If the value of your Property is over the IHT allowance, when put in trust, it could attract future tax implications.

Your property is not necessarily exempt from being assessed for medical costs.

 

Otherwise known as a Testamentary Trust or Property Trust

All refer to protecting your property. Established on death. Each owner leaves their half to the trust. It can’t be used to avoid IHT but once half is in trust, it can’t be assessed for medical costs.

There are Two types of Discretionary Trust.

  • Fixed Interest – First Beneficiary has Absolute rights.
  • Discretionary Interest – Trustees have power to decide what Beneficiary receives what. There is usually a letter of wishes given to the Trustees to manage the trust by.

Fixed Interest Trusts are treated differently to Discretionary Trusts for tax purposes

There is often some confusion about what each means and two be sure you wold need to check the deeds of the house. But to explain the difference as they are treated differently on death.

  • Joint Tenants – Assets pass directly to Spouse.
  • Tenants In common – Each own half and do not pass over automatically. A will or Trust is needed.
which is right for me ?

When deciding which path is right for you, there is a lot to consider and you will need to talk to a Professional. The Decision Tree or Flowchart opposite will give a clear indication which may suit.

Inheritance Tax Planning

With so many people un-prepared for the management of their estate in the event of death, plus the fact that some options are time sensitive. It makes sense to look at your options sooner rather than later.

You can protect your estate for your family and loved ones by becoming Inheritance Tax Efficient, to do this you must know and take advantage of your options.

  • Ensure your estate goes to who you want, how you want. Not Sold to Meet IHT costs.
  • Protect your loved ones.
  • Future proof against increase in costs.
  • Protect Future Generations
Structured Planning Through

Gifts

Annual Allowances

Property Trusts

GIFTS

Can be any part of your estate, though usually used for the passing over larger value items like Property, Art & Cars.

Gifts have a Seven year sliding scale of potential tax liability.

After Seven years have passed they are completely tax free.

There are rules about passing on property and still living in it. You would need to pay a marketable rate of rent.

ANNUAL TAX ALLOWANCE

  You can currently gift a total of £3,000 a year.

You can increase this by using ‘unspent or unused’ allowances from other years.

PROPERTY TRUSTS

In specific Property Trusts. As discussed earlier in the Living Trusts or Property Trusts. Primarily Used to protect against medical care costs. However, they still have a place in IHT Planning because the surviving Spouse / Partners estate on death will be valued at a lesser amount, reducing the potential or amount of IHT to be paid.

They allow you to put your half of your home into trust, so after death, your half is put in trust so if the surviving spouse / partner needs to go into trust then only half the property proceeds can be used, protecting the other halves value.

Need Help ?

To help and assist you, we have detailed a Decision Tree or Flowchart to help you identify which option may be best for you. We advise that you will need to speak to a Professional to arrange any of these options.

You can also download our Essential Guides for Wills & Trusts for your future ease of reference.

IHT FLOWCHART

Protecting Your Property

Measures for protecting your property against Medical costs and potential IHT costs have changed over the years. Living trusts no longer guarantee the property wont be used for IHT calculations.

The  best you can do is to either Gift your property and live seven years to nullify any IHT, though if still  living in it you may have to pay a rent at the applicable market rate to the people you gifted it to. Alternatively you can arrange to use Property Trusts to put your half of your property in Trust on your Death. This has two benefits,

  • It reduces the estate size for IHT calculations for the surviving partner.
  • It removes half the property for Medical care costs, should the surviving partner ever need them.