Inheritance Tax Planning with Trusts

9 May 2023

WHAT IS A TRUST?

Not just a financial product for the wealthy, a trust is a legal arrangement whereby assets are transferred to a trustee who’s then responsible for managing those assets on behalf of the beneficiaries of the trust.

Beneficiaries can be individuals, charities, or other trusts.

Trustees have a legal obligation to manage the assets in the best interests of the beneficiaries, according to the specific terms of the trust deed.

WHY WOULD YOU SET UP A TRUST?

Reasons for setting up a trust as part of estate and Inheritance Tax planning include:

  • To control and protect family funds and assets
  • To manage the affairs of someone who’s too young to do this themselves
  • To manage the affairs of someone who’s incapacitated
  • To pass on assets whilst you’re still alive
  • To pass on assets when you die (a ‘will trust’)

In the context of Inheritance Tax planning, trusts can be used to ensure assets are passed on to the intended beneficiaries in the most tax-efficient way possible.

There have been many complex changes to the treatment of trusts, so it’s vital you seek advice from a professional advisor.

SO, HOW CAN YOU PROTECT YOUR ASSETS THROUGH TRUSTS?

There are ways in which trusts can be used as part of your Inheritance Tax planning strategy to protect your assets (though it’s important to note the tax treatment’s different depending on which type you set up).

1. Reduce the value of your estate – Assets held in a trust usually aren’t considered to be part of your estate for Inheritance Tax purposes, so you can reduce your Inheritance Tax liability by reducing the value of your estate.

2. Use your allowances and exemptions – By using trusts, it may be possible to maximise your annual exemptions and allowances and reduce the overall amount of Inheritance Tax that’s payable on death.

3. Control the distribution of assets – Using trusts in Inheritance Tax planning allows you to retain a degree of control over the distribution of your assets.

what assets go into a trust?

Assets that are usually put into a trust include:

  • Property
  • Financial assets
  • Life insurance
  • Money
  • Stocks and shares
  • Art
  • Bonds
  • A business

WHAT ABOUT CHILD TRUSTS?

The government discontinued child trusts in January 2011 and replaced them with Junior ISAs – but these aren’t the only option available if you want to save for the future of your children. The good news is you can locate lost child trusts if you had your children between 2nd January 2011 and 1st September 2022.

THINKING OF SETTING UP A TRUST?

If you’re thinking about setting up a trust, it’s important you fully understand how it works and what it protects. If it’s set up in the right way, a trust is an effective estate planning tool that gives you and your family control over your assets and estate.

 

GET ADVICE ON TRUSTS

 

An important note: The value of investments can go up and down, so you may not get back what you invest. Tax treatment depends on individual circumstances and tax rules may change in the future. Content correct at time of publishing.

 

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