Can you advise on the setting up a trust? I am looking at the possibilities of avoiding inheritance taxes. Thanks, Charles

Asked by charles.pickup

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Answered by Richard Salter, IFA in Trowbridge, WILTSHIRE
Any decent financial adviser can advise on setting up trusts for inheritance tax planning - but this will depend upon how complicated your estate is. Trust law can be very complicated and is most certainly the domain of appropriately qualified and experienced legal professionals. Having said this most people's finances and domestic lives are reasonably straight forward and so should be adequately covered by 'off-the-shelf' trusts provided through competent financial advisers through the specialist legal departments of most financial service companies.

One of the most common uses of trusts for inheritance tax planning is in combination with a whole-of-life assurance policy. While of life policies cover us for the whole of our lives (so long as we go on paying the (reviewable) policy premiums).

The trick is that when we die and the policy pays out it pays the proceeds into a trust in which the life policy has been held and NOT to your estate. This new trust money - created by your death and the resultant life plan pay-out is then available to your trustees to pay any death duties on your estate. This solution neatly settles any inheritance tax liability your beneficiaries might be facing and so enables your entire estate to be left to your dependants.

Simple trust paperwork for you to complete will be supplied at the point of application and this neat solution can be up and running sometimes within hours.

Good financial advisers can also help you invest capital, or regular sums, into trust based arrangements so gradually placing that capital outside your personal estate (and into a trust) which will have the same effect in reducing or avoiding any inheritance tax liability on your remaining total worldwide capital worth when you die!

Currently the amount of NET worth (after allowing for mortgage and other debts we may leave behind) is £325,000 per person, £650,000 for a married couple. If your net worth is greater than the so-called 'nil rate tax band' of £325,000 then IHT will be due at 40% on anything over this sum. | 09.27.12 @ 17:54
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$commenter.renderDisplayableName() — {comment} | 08.18.17 @ 14:38
Answered by D C, IFA in Bristol, DEVON
Hello, Charles, and thank you for your question.

Richard has provided you with a good and comprehensive answer and in particular may I stress the need for competent financial advice in this area. When considering investments, there are, for example, trust arrangement which give you income (but no access to the capital) and others which give you access to your capital but no access to the growth. Many such arrangement also - as an added bonus - will protect your assets from the hands of the local authority should long-term care become an eventual issue.

You can also within limits give annual sums away without any inheritance tax implications, and you might consider some exemptions (to charities and museums, for example) in your Will.

I am personally not so much in favour of the insurance solution. It is actually the strongest of all, because it is very unlikely ever to be challenged by HMRC (no reason to - because they will get their money!) No, my doubts arise because it is very common for the life insurance policies to be cancelled during the lifetime of the individual - often because the price has gone up. The whole point of the insurance is then lost, but it will work if you know you will keep it going for your entire life and can afford any increase in premiums that might take place if the premium rates are not guaranteed. | 10.08.12 @ 10:51
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$commenter.renderDisplayableName() — {comment} | 08.18.17 @ 14:38
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Answered by

Richard Salter
Richard Salter, IFA in Trowbridge, WILTSHIRE

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