Trusts and Tax

Trusts are a useful means of controlling the assets in your estate during your lifetime and also for potentially reducing your tax liability.  There are different types of trusts, the most common of which are:

• Bare trusts
• Discretionary trusts
• Life interest trusts

Bare trusts

In law, children cannot receive an inheritance until they are 18 years old.  If they are younger than this when they inherit, the money will be held on trust for them, until they are old enough to claim it.  This is called a bare trust.

Discretionary trusts

This type of trust can be very useful for inheritance tax planning.  It is administered by your named (and trusted) trustees, who have the ultimate discretion as to who, out of a selection of named beneficiaries, will receive income and capital  from the trust fund. 

Life interest trusts

This type of trust gives a person a right over an asset (normally a property), or enjoyment of that property or asset during their life time.  Upon their death, the benefit will pass to another named beneficiary.  This is a useful means of providing for a wife, husband, partner or loved one during their lifetime but retaining ultimate control over who actually inherits that property or asset.

Tax

“In this world, nothing is certain except death and taxes.” So said the astute Benjamin Franklin.

We can advise on personal tax planning matters and make a referral to an independent financial advisor where appropriate, when these two unfortunate circumstances coincide. 

In particular, we are able to offer advice on inheritance tax planning if your estate is worth more than the threshold for inheritance tax (£300,000 for tax year 2007/2008).  This may be through using available tax relief or allowances, lifetime gifting or through the preparation of a tax efficient will or trust.

We can also advise on the possibility of mitigating tax payable on an estate after someone has died by drafting an appropriate deed of variation.