Trusts
Bare trust
In a bare
trust the property is held in the
trustee’s name – but the beneficiary
can take both the income and trust
property whenever they want. You
might, for example, use this type of
trust to pass gifts to children
while you’re still alive.
Interest in possession
trust
W ith an
interest in possession trust the
beneficiaries have a legal right to
all the trust’s income (after tax
and expenses), but not to the
property.
You can, for
example, set up an interest in
possession trust in your will. You
might then leave the income from the
trust property to your partner for
life and the trust property itself
to your children when your partner
dies. Discretionary trust
With a
discretionary trust the trustees
decide how much income or capital,
if any, to pay to each of the
beneficiaries – but none has an
automatic right to either. A
discretionary trust is a way you can
pass on property while you’re still
alive and still keep some control
over it through the terms of the
trust deed.
Accumulation and maintenance trust
An
accumulation and maintenance trust
is used to provide money to look
after grandchildren when they’re
young. Any income that isn’t spent
is added to the trust property, all
of which later passes to the
grandchildren.
In England and
Wales the beneficiaries become
entitled to the trust property
between ages 18 and 25. At that
point the trust turns into an
‘income in possession’ trust. In
Scotland, the trust usually ends
when the beneficiaries reach 16.
Mixed trust
A mixed trust
may come about when one beneficiary
of an accumulation and maintenance
trust reaches 18 and others are
still minors. Part of the trust then
becomes an interest in possession
trust.
Why set up a trust?
To make provision for your family and
later generations in the event of your
untimely demise.
- As a your assist in tax planning
tool . Setting up a trust can reduce
tax liabilities and is particularly
important when planning you Inheritance
Tax strategy.
- To protect assets when prefer not to
allow a beneficiary a free hand with
there disposal.
- To make a gift with conditions based
on your personal wishes. You can make
the rules on how the trustees should
deal with the trust, and at what age and
in what circumstances your intended
beneficiaries can have full benefit from
the trust, if ever.
There are a number of ways that a
trust can be established
The Budget 2006
made speeding changes to the way trusts
can help mitigate IHT
The Finance Bill makes absolutely clear that there is no
retrospective tax
charge. In particular, no one who wrote a life insurance
policy into trust
before Budget Day will have to pay an inheritance tax
charge. All of these
continue to be exempt from inheritance tax as they were
before the Budget.
This means that statements about millions of people being
affected by the
change remain simply incorrect.
The Finance Bill and its Explanatory Notes provide complete
certainty that the
new rules will not apply to life insurance policies entered
into before Budget
Day, even where the policy holder continues to make payments
after the
Budget under the original terms of the policy.
The Finance Bill also makes clear that all future as well as
existing bare trusts
are not affected at all by the changes. This ensures
straightforward life
insurance policies, which, for example, are set up to pay
off a mortgage if a
person dies, are outside the rules.
No one who takes out a new insurance policy designed to
provide security for
their families if they die will be affected where there is
either no value in the
trust to tax – the vast majority – or the value is below the
£285,000 threshold.
If the policy does eventually acquire value above the
threshold, which rises to
£325,000 by 2009, then the maximum inheritance charge is 6%
after 10 years
on the excess amount.
No new insurance product that has an investment element is
affected unless
value is accumulated over £285,000 in a seven year period –
that is
equivalent to savings of £40,000 a year or a single payment
of more than
£285,000. And, again, inheritance tax is only paid on the
excess amount
above the threshold.
You need to take advice on what
best suits you now and remember to
review the terms of the trust (if
allowed) in the event of changing
circumstances.
|
