Trusts and Inheritance Tax

Aug 18, 2016
The headlines were that the Duke of Westminster’s estate will not be subject to Inheritance Tax because the estate is not left to him outright but is held in a trust. How much of this is true? Are trusts only for the rich and famous or are they relevant to the ‘man in the street’.

There are significant benefits of trusts in that they do not form part of someone’s estate for the purposes of calculating Inheritance Tax. Inheritance Tax is usually paid on a death on any assets over £325,000 at 40% (there are various important exemptions – in particular there is no Inheritance Tax on anything left to a husband, wife or civil partner). Trusts are not totally free of Inheritance Tax, however, they are subject to a charge every 10 years from the anniversary of their creation. These amount to around 6% of the funds held.

Trusts are useful for a number of different circumstances for everyone – you may even have one without realising. The benefit of any pension lump sum and any ‘death in service’ with an employer are often subject to a trust.

It is also useful to write the benefit of any insurance policies in trust so that these are not subject to either Inheritance Tax or the process of obtaining a Grant of Probate and can be paid out to beneficiaries immediately upon a death.

In situations where you want someone to be able to have the benefit of any money but not have control (eg: for children or persons suffering from mental health issues), then trusts can be extremely useful as they can also protect family assets from the divorce or financial difficulties of a beneficiary.
For more information and to find out how we can help you, please contact a member of our Wills and Probate Team on 01279 755777.

Sarah Lockyer

About the author

Sarah Lockyer

Sarah has over 25 years' legal experience in advising a wide range of clients on Wills, inheritance tax planning, trusts, elderly client work and the ...

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