IHT and Trusts

mike39

As I understand it if you put something - say an insurance policy - into a Trust the value of the gift into the Trust is the value of the asset at the time the Trust is set up. If the giver dies within 7 years the value of the gift becomes part of their taxable estate.

However, each year a person can give away up to £3,000 which does not count for IHT purposes. So, if you put a life policy worth £20,000 into a Trust you can reduce the value of the gift for IHT purposes to £17,000 (assuming you haven't used the £3,000 exemption elsewhere).

But is it just 1 year's £3,000 exemption you can use? Or that year's and the previous year's £3,000 exemption as well? Or even the previous 7 years exemptions - reducing the value of the £20,000 gift into Trust to zero?

SeniorSam

The £3000 gifting allowance for each person is for each year but if you have not previously gifted, then you can carry forward one year.

The value of a gift into a Trust is exempt after seven years but a persons gifting allowance is not related to that gift at all and cannot be connected with the gift made to the Trust.

The idea of a life poliy in Trust is so that the benmefit cannot be counted towards the estate value, but a capital gift into Trust has to be in the Trust for seven years to become exempt from your estate. This is unless you have a term assurance for 40% of the value when you set up the Trust.

Hope this helps.

Sam

DavidLaGuardia

mike39 wrote: »

However, each year a person can give away up to £3,000 which does not count for IHT purposes. So, if you put a life policy worth £20,000 into a Trust you can reduce the value of the gift for IHT purposes to £17,000 (assuming you haven't used the £3,000 exemption elsewhere).

Note this is a pensions board! however:

The comments by Senior Sam on the gifts are correct, but in addtion to that what do you mean by £20,000 value?

The payment on death is not the gift, so putting a a policy that pays 20k into trust on death will mean the 20k is outside the esate even if death occurs tommorow.

The value of a transfer of life inurance into trust is measured by the surrender value (what you could get if you cashed it in at the time) This will be nothing on a Term or a Whole of Life Poloicy not linked to investment. On a Whole of Life policy lineked to an investmenr it is likely to much be less than the value on death.

The subsequent gifting will be based on the premiums you pay, but if this and other gifts fell inside the £3k a year there is nothing to worry about and even if you were making the £3k up in other gifts, there is the poiint that gifts out of normal regualr surplus income is exempt and does not need to form part of these special exemption gifts.

mike39

Sam, David,

Thank you. I need to go back and look at exactly what sort of policy it was that was put into Trust.

If I have any more queries I'll post them on the Cutting Tax board.