Life Assurance Written In Trust - Trustee Duties With Respect To IHT

Honkytom

Hi

I've scanned through previous threads and can't really find an answer to my query....

My wife & I are setting up two Aviva life policies each (both to be written in trust) for the purposes of family protection (two young children) in the event of our death or serious illness. One will be life cover only for £500K and the other will be Life Cover + Critical Illness Cover for £100K.

We are buying the policies through an online broker on the advice of Martin.

We are in the process of appointing trustees - hopefully very close friends of the family who we trust will do best for our kids.

My question is: In the unfortunate event that both my wife and I died, and the policy proceeds went into trust, are the trustees personally liable for any IHT due if the trust passes a tenth anniversary and a periodic charge becomes payable?

eg if we were to die in say nine years time, our kids would be too young to benefit from the proceeds and the cash would have to stay in trust for a further 5-10 years meaning that a tenth anniversary would have to be passed.

I believe that new rules proposed by HMRC are likely to come into effect in June 2015 (also affecting trusts set up from June 2014) limiting the nil rate band of IHT for ALL trusts set up during the lifetime of an individual to the current amount of £325K. So setting up individual trusts on consecutive days of less than the nil rate band to benefit from a separate nil rate band for each trust is no longer an option.

In the example above, the total trust fund value would be £600K each for my wife and I and assuming that a tenth anniversary passed a year after our deaths, IHT would be due on the amount over the £325K band ie if no withdrawals from the trust fund had been made, then roughly 6% of £275K (£16.5K + exit charge on anything taken out) for each of us.

I understand and accept that there is this liability and that it is a lot less than the 40% that it'd be if the policy wasn't written in trust but I am concerned that I would be leaving the trustees with a personal tax liability when they are simply doing a "good turn"!

So can the trustees pay the trust IHT tax liability from the trust fund and NOT their personal money? I assume this would be the case because otherwise no-one would want to be a trustee!

Many thanks for any advice you can give.

Tom