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What are the IHT benefits from a trust fund?

(6 Posts)
KevinFoley Wed 08-May-13 11:18:58

Are there still any inheritance tax benefits for putting assets into a trust fund? What are the restrictions (time etc) if any in terms of the beneficiary then being able to access the trust fund without being clobbered by IHT? Need to know before setting this up for my child, thank you.

mumblechum1 Wed 08-May-13 12:17:16

Hmm, you really need to give some idea of the value of your estate. If you're married or in a civil partnership then you and your spouse have a joint threshold of £650k, assuming that you give everything to one another. When the first of you dies, their personal allowance of £325k passes to the survivor, so IHT only becomes payable on the second death, at 40% of everything over the £650k (today's figures, of course).

Any death in service benefits, life insurance and pensions will usually not be subject to IHT as they're held in separate trusts already and don't fall into your estate.

The thing about IHT is that unless you have a very sizeable estate, putting a large chunk of it into a trust takes it outside your control (usually, depends on the trust), and you may regret it if you run out of money later in life.

For most people, giving part of their estate away by way of Potentially Exempt Transfers, usually later in life when they may have downsized and are sitting on a large chunk of cash, is a better option than tying their money into trusts and therefore taking away flexibility. So long as you live for 7 years after the date of the gifts(s), no tax is payable on them and if you die within the 7 years, IHT applies on a sliding scale.

I'm a qualified lawyer and will writer and have a paid for advert over on MN Classifieds (Small Business) titled "5* Will Writing Service Recommended by Mumsnetters" if you're interested.

KevinFoley Wed 08-May-13 12:35:03

Thanks Mumblechum that's helpful. Sorry I wasn't very clear in my post. I meant setting up a Trust for my child and husband as part of my will, would wish to leave half to each beneficiary (keep child's in Trust until age 21). Have house worth just under a million plus some investments, a few flats, savings, etc.
Just wasn't sure if there was any tax benefit these days in trusts or whether a straightforward will would be taxed the same.

mumblechum1 Wed 08-May-13 13:26:00

Is the house in joint names in equal shares, or just your name?

I wonder if you're thinking about IHT threshold discretionary trusts which used to be popular before the more generous threshold came in; until a few years ago, these were popular because people would give an unspecified sum, (but equivalent to whatever the nil rate threshold was at the date of death) to the spouse, and the balance would be held on a discretionary trust. They're not generally used any more for the reasons set out in my earlier post, and because of the increase in the joint threshold.

I think in your circs if you're thinking about an outright gift to your husband, so that only the gift to your child would be held in trust, there would be no benefit so far as inheritance tax is concerned. The IHT is payable on the total estate, not on two separate sums, unfortunately.

KevinFoley Wed 08-May-13 13:50:09

House just in my name, was inherited. Yes- it was the discretionary trust that I had read about. That's helpful to know, thank you. Think I will just gift in my lifetime as much as I can then. Many thanks!!

mumblechum1 Wed 08-May-13 13:58:37

You're welcome smile

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