Inheritance Tax Planning

Steve_Gray_2

Discretionary Trusts

My financial advisor told me that each spouse can set up a discretionary trust (to cover the nil rate band) that has the other spouse as trustee and the children as benficiaries. When one person dies the surviving spouse has complete control of the trust and can withdraw all the assets from it (effectively as a loan) and use them as required. On the eventual death of the spouse the "loan" is repaid to the trust and is then available in full to the beneficiaries. The residual spouse's estate is then subject to IHT as normal.

thebard101

IHT Thread - this topic is the most value add, as you rightly say this can save the majority of readers the most money. However, as very complex all too often it gets put in the "Too hard" file. I hope you can let the TAXMAN or one of your experts into this and contact some experts about some general deeper advice also ..

I note from my copy of your book, nothing about IHT - worthy of inclusion in Updated version ?

Everyone should understand something about planning the long term 'money diet' - Death and Taxes. E.g. Most people have joint bank accounts, if you die without any for of Will, your account is frozen until the mess resolved - the ultimate unthoughtful act for your survivors ?

Also, like so many areas, totally disillusioned with the professionals, paid £400 for a standard Will  from  solicitor 4 years ago which is very poor. Easy money for pressing the priny button and a few mods.  At £200 per hour going to see an expert or solicitor is costly. Tried the Will Writers Association and they were poor and knew very little. Now looking at St James Place who write Discretionary Trusts and their "Asset preservation Trust"  - ever heard of them ? Again not cheap - £550 for a Discretionary Trust !

http://www.sjp.co.uk/inheritance.htm

Where oh where do you go to for good expert advice ?

standeasy

???
Regarding reply 81, S.G. could you please clarify final sentence as I am uncertain of your meaning.

Do you mean that only half of total estate is subject to IHT after death of remaining spouse?

Would be a good solution in our case if this were so.

lisyloo

Do you mean that only half of total estate is subject to IHT after death of remaining spouse?

I don't think it means that (unless it just happens to be exactly half).
The residual estate would be what is outside of the discretionary trust (which may be half but probably won't be).

sabelu

Hi my mother (70) has an estate around £500k, house 250k isa's peps & trusts 150k and stocks,shares and savings around 100k. She is concerned re inheritance tax and the fact this will be hit. She has a pension/investment income around £800 per month. Currently she pays around £6 per week income tax on pensions etc. There is a lot of talk in books/mags etc advising people to get an accountant for inheritance tax planning is this a real benefit ? Do the costs get made up by the savings ?
Any experiences ?

lisyloo

I have not had any direct experiences but with a large estate then the potential savings are thousands if not tens of thousands or possibly hundreds of thousands of £s.

Surely worth spending a few hundred on accounts fees for.

Depending on the time available to you (and inclination) you could certainly do some research yourself (age concern may be able to help).
Personally I would want to do this to make sure the advice from the accountant was along the right lines.
I would then use an accountant to sort it out properly but at least with a bit of research you will understand what's going on and won't get ripped off.

Jaime_Bien

One thing to bear in mind with tax planning is that, whilst in an ideal world we would have our affairs in apple pie order prior to the visit of the grim reaper, it is possible to vary the terms of someone's will, or the rules of intestacy if they do not have a will, within 2 years of the date of their death - in effect a second bite at the tax planning cherry.

The "variation" means that the redirected disposals are deemed to come from the deceased, rather than the original beneficiary of the will/intestacy, so there are no cgt or inheritance tax problems for the original beneficiary.

klondyke

Deed of Variation works for the moment, but year after year there has been speculation that this loophole will be withdrawn. Best not to leave it to chance that the opportunity will still be available when you fall off your perch ;D

klondyke

Sorry, backtracking a bit, as I hadn't visited this thread for a while.

In response to Brodev's and my query about simply writing the correct wording for a nil rate band will, Paul Varjak wrote:

It is also often the 'norm' that the Will of both husband and wife would use the nil rate band to create a Discretionary Will Trust instead of making a gift outright to your children. This would especially be the case where it would necessitate gifting the family home (or part of it) to the children.

Agreed - but, can't speak for Brodev, but my interest in possibly doing things more simply is that we'd probably have to sell the house to pay the solicitors ::)(in whom I have no trust whatsoever) to set up a discretionary trust. Last quote I saw, just for mirrored discretionary will trusts, using 2 x nil rate altogether came to about £1600 - though I am sure if I did my homework, there are cheaper ones. OK, I hear you say, 'cheap at the price, considering how much might be kept from IR'. But is it? If one's experience of solicitors is as a gang of muppets (and I've worked for some ;D) then one has as much interest in keeping dough out of their clutches as well as IR ;D

More seriously re bonds in trust Paul Varjak wrote

Her money (on sale of house) was put mainly into Investment Bonds (W/P and commercial property) and held inside discounted gift trusts which give her a 5% income. The only problem is that the Investment Bonds insure my mum's life and I learnt some time after purchase that this may possibly cause problems in avoiding IHT because she is also the donor to the trust. It seems that this was not generally known 2-3 years ago.

I was involved in tax planning for my late mother-in-law. To cut a long story short, ended up with 3 'family trusts', similar to current discounted gift trusts, but before the law was changed, the settlor could take a tax free income by way of 'loans' paid back by the estate on death. A good dodge while it lasted .... but the reason for 3 trusts turned out to be fortuitous. Originally mother-in-law had wanted to gift shares outright to sons, but there was both a CGT and an IHT problem. Also, sons were wary in case she eventually needed the money, so set up trusts with the proceeds of the gift. (Shares were sold in tranches over April 5th-6th to mitigate CGT). Luckily, mother in law survived long enough for there to be no IHT on any of the 3 trusts. However, once the law changed and she could no longer take tax free income from her own trust, the other 2 came into play, as the sons were settlors of their trusts but could loan to a beneficiary - mother-in-law. Our wonderful financial advisers had not realised this and were telling us it was impossible etc, until we and a senior executive of company concerned took advice from IR. We requested the confirmation in writing, in monosyllables, and put the resulting document away for several years.

Even then, when the time came, we had to argue the toss with the capital taxes office - who originally weren't going to allow the 'loans' back from the estate to the sons. Eventually, a full apology .... but we were on our own; financial advisers were useless and reluctant to argue with the august CTO despite law being on our side.

Point is, 'expert advice' just isn't always expert.

alexj2002

According to today's Sunday Telegraph Inheritance Tax is rising to 50% for some and reduced for others (using bands). This means that even more money is potentially lost to the taxman as the gov. say that it will raise an extra £150 million a year!. Hopefully us money savers can cut that figure ;D