When you put assets in a trust, they are under the control of an appointed person or persons called ‘trustees’. The trustees then manage the trust according to your instructions, even after your death.
Bare Trusts are also known as ‘Absolute’ or ‘Fixed Interest Trusts’, and there can be subtle differences. The settlor – the person creating the trust – makes a gift into the trust which is held for the benefit of a specified beneficiary. If the trust is for more than one beneficiary, each person’s share of the trust fund must be specified.
With a Discretionary Trust, the settlor makes a gift into trust, and the trustees hold the trust fund for a wide class of potential beneficiaries. This is known as ‘settled’ or ‘relevant’ property. For lump sum investments, the initial gift is a chargeable lifetime transfer for Inheritance Tax purposes.
FlexibleTrusts are similar to a fully Discretionary Trust, except that alongside a wide class of potential beneficiaries, there must be at least one named default beneficiary. Flexible Trusts with default beneficiaries set up in the settlor’s lifetime from 22 March 2006 onwards are treated in exactly the same way as Discretionary Trusts for Inheritance Tax purposes.
These trusts are often used for family protection policies with critical illness or terminal illness benefits in addition to life cover. Split Trusts can be Bare Trusts, Discretionary Trusts or Flexible Trusts with default beneficiaries. When using this type of trust, the settlor/life assured carves out the right to receive any critical illness or terminal illness benefit from the outset, so there aren’t any gift with reservation issues.
A Lasting Power of Attorney (LPA) enables individuals to take control of decisions that affect them, even in the event that they can’t make those decisions for themselves. Without them, loved ones could be forced to endure a costly and lengthy process to obtain authority to act for an individual who has lost mental capacity.
If you have business owner status, or have shares of a business, this will be reflected in the value of your estate. Business Relief is a valuable Inheritance Tax relief for business owners, whether making a lifetime transfer or on death. Business relief is either 50% or 100% on an estate’s business assets. The exact relief amount will depend on the nature of the assets.
Whether you have earned your wealth, inherited it or made shrewd investments, you will want to ensure that as little of it as possible ends up in the hands of HM Revenue & Customs.
Many people want to do what they can to ensure they maximise the amount they leave to their family and minimise Inheritance Tax, but working out how much you can afford to give away during your lifetime isn’t easy.
If you’re currently receiving or have been looking into the State Pension, then you’ve probably heard of the ‘triple lock’. But what is it?