Life interest trust - early termination

[Robert55]

Hi all, I'm new to the forum and I would like to ask a question about terminating a life interest trust early. The life tenant wants to terminate the trust early so that the remaindermen (own children and step-children) can receive their inheritence now (instead of upon his death). He has a number of other assets so terminating the trust early does not affect him from a financial point of view. The trust is in the form of sale proceeds (kept in a bank account) from the sale of the property that he owned as tenants in common (50% each) with his late wife.

• Am I correct in thinking that early termination of the trust will be considered a gift from his estate - PET, that could be subject to inheritance tax if he were to die within 7 years and his estate worth was above £325,000?

- If the trust wasn't terminated early but was terminated upon his death (as currently set up) then would the trust amount still be calculated as part of his estate in any case? - Are there any additional tax implications/negatives to consider when terminating a life interest trust early?

Thanks in advance for any advice/information.

"...early termination of the trust will be considered a gift from his estate - PET, that could be subject to inheritance tax if he were to die within 7 years and his estate worth was above £325,000?"

Yes, this is correct (although the figure of £325k is not necessarily right).

One thing to consider though is that if any of the beneficiaries are under the age of 18 then you cannot do this. You will have to wait until all beneficiaries are over the age of 18.

If there is a beneficiary under 18, then there is a way of doing a variation which will allow the adult beneficiaries to get their inheritance while still keeping the child's inheritance in trust.

This is complicated and I strongly recommend you get professional advice.
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"If the trust wasn't terminated early but was terminated upon his death (as currently set up) then would the trust amount still be calculated as part of his estate in any case?"

Yes, and he would also have all the unused allowances from his deceased spouse.

Assuming that the wife left everything (or mostly everything) to him then he can also make use of her unused IHT allowances, so he could potentially pass on up to £1 million without paying IHT.

Thanks for your reply Another2Cats.
It is much appreciated.