Will trusts and inheritance tax

tonytheviking

Hello. My wife and I just made wills - simple mirror wills leaving everything to each other on first death and then to the children on second death.

Our assets are worth approx 600k.

My IFA tells me we should have Will Trusts. I have read about Will Trusts and for the life of me, I can't understand the benefits. I must be a bit slow...

I will be discussing again with the IFA, but if anyone here has the time to write down in plain English why I might need one, I would be hugely grateful.

Many thanks,
Tony

yelf

Ask him why to bother bearing in mind Nil Rate Bands are now transferrable between spouses. (which basically means you have no IHT liability) - assumptions made

Mahmood_Reza

The comment about the Nil rate bands is correct to, however that will only apply to intra-spouse trasnfers. From the IHT view a will enables you to decide who gets what, allows you to impose conditions, plan to reduce IHT (eg setting up a trust for benefit of kids) etc. Situations of husbands and wives dying within a short period of time of each others passing is not as arre as one would expect.

tonytheviking

Thanks. I suppose what I'm asking is if someone can explain how a Will Trust will enable me to reduce the IHT my children would have to pay if both my wife and I died? Is it true that the children would have to pay IHT on anything over a certain threshold?

Thanks,
T

Johnhowell

No, your children will not have to pay IHT - the estate pays any IHT due before distribution. OK, OK in essence they do pay because their legacy is reduced before they "receive" it. It is for the executor/executrix of the estate to deal with the IHT implications.

Regards,
John

tonytheviking

Thanks. So the IHT is paid before the estate is distributed. But am I able to change the threshold for IHT using a Trust Will?

Thanks,
T

John_Pierpoint

When the first of the two of you die the survivor will be worth 600K.
The adviser might be thinking of giving the survivor an "interest in possession" (life interest in the income) trust.
This arrangement would "protect" the first "half" of the joint estate from being given away, left out side of the family or being claimed for care fees by the local council.

Do you have lasting/enduring power of attorney in place for both of you?

Are your assets equally held at present?
The adviswor might be thinking of the problem created by the old standard of a clause that said .........and surviving me by 28 days in the situation where one spouse owned 500K and the other 100K and both died in a car crash.

CLAPTON

currently the IHT allowance is 325,000 per person
the allowance is transferrable to between spouses on first death

so if you make mirror wills then on the second death the IHT allowance will be 650,000
if your estate is less than 650,000 the estate will pay no IHT so there is no point is making complicated trust arrangements to avoid IHT

olbas_oil

I have three related questions:

Suppose the joint estate value is higher (say £1m).
What then would be the advantage of a 'will trust'?

Suppose all assets are in joint names? Does that mean there is automatic transfer of 'half' to the spouse? Or is the first partner's share become part of the estate, which may then be passed to spouse or children as determined by the will?

Where is the clearest explanation on the web?

dzug1

Well OP already has a form of will trust - his entire estate goes in trust to his widow, who can only have access to the interest from it, not to any capital, which the kids can only access on her death.

Leaving taxation aside, a will trust can be made much more flexible, with the trustees being empowered to allow the widow - or the kids - - or both - more access according to how it is set up.

For widow read widower if things happen in reverse order