IHT - Deed of Variation possible?

ctdctd

Hi,

A relative passed away last month. Single, never married, no children.
I am Executor and sole beneficiary.
Estate approx 500K - cash, S&S ISA's, bonds, no property.
IHT liability approx 70K

I aimed to do a DIY Deed of Variation to pass a substantial part of the estate to my adult siblings. My initial reason for doing this would be to reduce future IHT liability from my estate should I not survive seven years.

However, could I use a DoV to set up a discretionary trust to pass the part of my relatives estate above the IHT threshold over to my siblings and hence reduce or remove the immediate IHT liability?

How would it work - could I be the Trustee and make payments when I felt like it? Any restrictions?

If I can do it, I'll get it done properly by someone with letters after their name! What should I expect to pay both now and going forward?

Thanks for any help!

getmore4less

if they inherited anything in the last 2 year there may be time to divert those assets.

no expert but I don't think you can divert assets to delay but can delay IHT on property(with interest)

Keep_pedalling

No, you can't avoid any of the IHT by sticking any of that £175 into a trust.

As you want to pass some of your inheritance to your siblings, would I be correct assuming you don't have any children, and don't plan to have any?

kidmugsy

ctdctd wrote: »

...
I am Executor and sole beneficiary.
Estate approx 500K - cash, S&S ISA's, bonds, no property.
IHT liability approx 70K

I aimed to do a DIY Deed of Variation to pass a substantial part of the estate to my adult siblings. My initial reason for doing this would be to reduce future IHT liability from my estate should I not survive seven years.

Yes, but is DIY wise? Have you got a draft DoV that you could use as a template?

ctdctd wrote: »

... could I use a DoV to set up a discretionary trust to pass the part of my relatives estate above the IHT threshold over to my siblings and hence reduce or remove the immediate IHT liability?

No. People seem to imagine that trusts are magic machines for avoiding IHT: they're not. But. as you said above, they are a convenient way of avoiding paying IHT twice in a row on the same money.

ctdctd wrote: »

How would it work - could I be the Trustee and make payments when I felt like it? Any restrictions?

If I can do it, I'll get it done properly by someone with letters after their name! What should I expect to pay both now and going forward?

You could use a DoV to set up a discretionary trust, with yourself as one trustee; you'd need at least one more. I wouldn't take on a lawyer as trustee; use lay trustees and pay a lawyer when you need one. You can also make yourself one of the beneficiaries, just as insurance vs calamity in your own financial life.


P.S. What sort of "bonds"?

ctdctd

Keep_pedalling wrote: »

No, you can't avoid any of the IHT by sticking any of that £175 into a trust.

As you want to pass some of your inheritance to your siblings, would I be correct assuming you don't have any children, and don't plan to have any?

Yep, no children that I am aware of!

ctdctd

kidmugsy wrote: »

Yes, but is DIY wise? Have you got a draft DoV that you could use as a template?

No. People seem to imagine that trusts are magic machines for avoiding IHT: they're not. But. as you said above, they are a convenient way of avoiding paying IHT twice in a row on the same money.

P.S. What sort of "bonds"?

Ta Kidmugsy - looks like my original plan is the plan then.
I'll find a draft DoV on the Internet to include my siblings in the estate. It would only be of use if I pop my clogs within seven years and I have no plans to oblige.

The "bonds" are Friends Life (ex Axa) distribution, and Prudential (ex M&G) distribution and value about £80K. No-one has been named as the beneficiary so I'm assuming they pay into the estate and become part of it. Still waiting for paperwork though.

Keep_pedalling

ctdctd wrote: »

Ta Kidmugsy - looks like my original plan is the plan then.
I'll find a draft DoV on the Internet to include my siblings in the estate. It would only be of use if I pop my clogs within seven years and I have no plans to oblige.

This should be of help it looks quite simple.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/373615/IOV2.pdf

John_Pierpoint

Thing carefully about the clause in the DOV that explains the treatment of IHT and CGT.

Somewhere on the HMRC instruction manual there is an example of how it should be written,

Presumably you want the resulting trust or gift to carry its own proportion of IHT and CGT liability if assets are sold after the date of death.

[In my case I had already sold an asset that had increased in value since the death and paid the CGT on it - a bit of shooting oneself in the foot].

SeniorSam

There is no reason to use a Discretionary Trust, unless it is to hold the gifts to yourself or your adult siblings rather than gift directly from your relative.

The seven year rule does not apply either as it is the relative that is the one who is gifting their estate.

The Deed of Variation could specify a Discretionary Trust to be set up to hold the gift to you, with Trustees of yourself and one other that you can trust, peferably not a professional if you wish to keep costs down.

A Discretionary Trust would prevent growth in your own estate, but do bear in mind that the Trust will be subject to income tax if the assets have income. Certain assets could have growth rather than income and would not then suffer income tax. Capital Gains Tax may also be payable if there is a gain.

A Trust can remain in force for up to 80 years and the beneficiaries of the Trust are those whom the Trustees select 'at their discretion', although you could be a named beneficiary even though you may decide later on not to be one.

It would be best to obtain the services of a STEP solicitor to help you with the Deed of Variation and the Trust wording, as you need to make sutre that it is correct.

Sam

kidmugsy

SeniorSam wrote: »

A Trust can remain in force for up to 80 years

It's now 125 years in E & W: different in Scotland, of course.