Inheritance Tax - Trusts are they worth doing ?

segovia

Every time I get into a discussion about inheritance Tax the subject of Trusts always arises. Surely the HMRC and current government are not that stupid, are they a means to reduce IHT or just another money spinner for the providers ? 

Keep_pedalling

Unless you are a multi-millionaire then almost certainly not, and don’t even think about putting your home in trust.

poseidon1

HMRC acknowledge that certain types of trusts ( with limitations) can and do mitigate or avoid IHT.

Some of these are:

1) Discretionary trusts
2) IPDI trusts for widows/widowers
3) 18 to 25 trusts for minor children of deceased parents

Trusts in 2) above have become increasingly popular even in scenarios where IHT may not be an issue, ie blended families with children from prior relationships.

By and large, however they are complex structures often requiring expensive professional advice and administrative  expertise, so largely inappropriate for modest estates well under  the £1 million threshold where most estates can claim the tax shelter of joint nil rate bands.

However, as you have also intimated, they have become fertile hunting grown for unscrupulous and unregulated will writing firms, taking advantage of a naive and credulous general public. 

A publicity drive to highlight the dangers of engaging unregulated will writing firms in wills and trust planning, is long overdue in my opinion.

tacpot12

HRMC also require Trusts to be registered and IHT to be paid every 10 years if they meet the requirements to do so, it it's definitely an area where you need professional advice and a good understanding of all the costs involved. 

Trusts have their own lanuguage and legal framework, so don't expect even a trivial task like registration to be easy. The Banks and HMRC are required to police Trust accounts for Money Laundering, so expect invasive questions from whoever the Trust banks with.  

Yorkie1

While there may have been good reasons for trusts years ago, with the change to tax regimes more recently it has become less appopriate for the regular person to need to use them. We have just unpicked my mother's (but left my late father's). Expensive and complicated.

segovia

Keep_pedalling said:

Unless you are a multi-millionaire then almost certainly not, and don’t even think about putting your home in trust.

3 Million Estate value at the moment but hope to spend most of it before I die. I don't think that's excessive in this day and age but appreciate we all have different circumstances. I am sure there are many more on this forum have 5M estate value and more.  

segovia

poseidon1 said:

HMRC acknowledge that certain types of trusts ( with limitations) can and do mitigate or avoid IHT.

Some of these are:

1) Discretionary trusts
2) IPDI trusts for widows/widowers
3) 18 to 25 trusts for minor children of deceased parents

Trusts in 2) above have become increasingly popular even in scenarios where IHT may not be an issue, ie blended families with children from prior relationships.

By and large, however they are complex structures often requiring expensive professional advice and administrative  expertise, so largely inappropriate for modest estates well under  the £1 million threshold where most estates can claim the tax shelter of joint nil rate bands.

However, as you have also intimated, they have become fertile hunting grown for unscrupulous and unregulated will writing firms, taking advantage of a naive and credulous general public. 

A publicity drive to highlight the dangers of engaging unregulated will writing firms in wills and trust planning, is long overdue in my opinion.

I know, we have friends now who are seeking financial compensation from a firm of IFA's who set up a trust to avoid parents care home fees and IHT. IMHO I think they are wasting their time 

Baldytyke88

segovia said:

I know, we have friends now who are seeking financial compensation from a firm of IFA's who set up a trust to avoid parents care home fees and IHT. IMHO I think they are wasting their time 

My sisters daughter is said to have put her compensation into a trust, I am trying to find out more information.

I am told that she does not have a pension; she has done it for that reason. It sounds bizarre, her friend has a trust too. She is not rich and there will be no inheritance tax to avoid.

It seems if you have a trust, it's not your money, so you are eligible for benefits. Google says it could be a bypass trust?

segovia

Baldytyke88 said:

segovia said:

I know, we have friends now who are seeking financial compensation from a firm of IFA's who set up a trust to avoid parents care home fees and IHT. IMHO I think they are wasting their time 

My sisters daughter is said to have put her compensation into a trust, I am trying to find out more information.

I am told that she does not have a pension; she has done it for that reason. It sounds bizarre, her friend has a trust too. She is not rich and there will be no inheritance tax to avoid.

It seems if you have a trust, it's not your money, so you are eligible for benefits. Google says it could be a bypass trust?

That makes sens if you are on benefits and suddenly come into some money, I'm not saying I agree with it however (;-) 

Baldytyke88

segovia said:

That makes sens if you are on benefits and suddenly come into some money, I'm not saying I agree with it however (;-) 

But she has a partner who is a prison officer, so that means she will not qualify for most benefits that require household income.

Marcon

Baldytyke88 said:

segovia said:

I know, we have friends now who are seeking financial compensation from a firm of IFA's who set up a trust to avoid parents care home fees and IHT. IMHO I think they are wasting their time 

My sisters daughter is said to have put her compensation into a trust, I am trying to find out more information.

I am told that she does not have a pension; she has done it for that reason. It sounds bizarre, her friend has a trust too. She is not rich and there will be no inheritance tax to avoid.

It seems if you have a trust, it's not your money, so you are eligible for benefits. Google says it could be a bypass trust?

Here's the 'more information': https://www.bannerjones.co.uk/you-your-family/services/putting-your-affairs-in-order/trusts/pages/compensation-protection-trust-explained

Google's wrong. A bypass trust receives lump sum benefits from a pension scheme. See https://techzone.aberdeenadviser.com/public/pensions/Tech-guide-bypass-trust#:~:text='Bypass%20trust'%20is%20a%20generic,the%20spouse's%20estate%20for%20IHT.