Setting up trust upon death and decisions

poseidon1

george4064 said:

poseidon1 said:

george4064 said:

Thank you all for your responses.

@Notepad_Phil that's what I'm potentially thinking (ie don't bother getting lawyers advice), but I feel getting their opinion would be helpful in case we've missed anything.

@Marcon you're right, I think the only reasonable way the shares could be converted to cash is if the company is sold (or if another shareholder(s) will buy us out, but don't think there's appetite for that).

The shares were valued on an average of revenue multiple, EBITDA multiple and another which I can't remember without checking my computer. 

@poseidon1 you're right, under the current rules the shares qualify for 100% BP relief (BPR). Are you suggesting by putting them into a Trust they'll only have the periodic charge applied as a worst case scenario if they no longer qualified for BPR? Seems like this could be an important advantage for a trust. Mum's other assets will definitely be over the NRB including the transfer of Dad's unused allowances and their main residence.

Edit: the company is a small finance consultancy, so pretty asset light (ie no land or machinery is owned by the company).

Yes, the trust can indeed be a safeguard to shelter the value of the shares from a future loss of 100% BPR status ( eg on takeover of a private company by a LSE listed business). It is one of a number  of reasons my firm established discretionary trusts for private company family shareholdings in the past. Whilst in the trust, as long as 100% BPR subsists, no trust 10 year IHT charge arises regardless of any increase in value.

However, unless your mother has a desire to retain access to the shares herself either direct or via the trust, would she have any objections to shares passing immediately to the three of you? I assume you are all fiscally solvent and where married no potential divorces on the horizon? Discretionary trusts often deployed as a protection measure in those scenarios.

Mother has no desire to retain access to the shares and wouldn't have any objections to the shares passing down to the three of us.

I think now it comes down to whether we put the shares in a trust or distribute directly to the three of us.

Just to clarify on the BPR from IHT point, if the shares were transferred into the Trust at a time when they attracted 100% IHT relief and that the rules changed at some point in the future that they no longer benefited from 100% BPR. Would the periodic charge therefore be applied going forward? Or would it remain as zero charge since the shares were 100% BPR when they were placed into a trust?

Regrettably no.

If BPR were removed or restricted in future, a discretionary trust at its next 10 year or exit charge, would find itself subject to whatever the new regime might be. However since it enjoys its own nil rate band, the impact of any change to BPR would be mitigated or avoided if the value of the shares remained within the nil rate band.