Trusts and Inheritance Tax planning

Putting your money or assets into a Trust can be a tax-efficient way of taking value out of your estate for Inheritance Tax purposes. Effectively, when you transfer anything into a Trust, it’s no longer regarded as yours – instead, it belongs to the Trust, which holds it for the benefit of someone else. When you set up a Trust, you can set out who the beneficiary or beneficiaries will be and how they will receive the benefits.

There are many different types of Trust and they can have advantages and disadvantages, depending on your personal circumstances and what you want to use them for.

You have control

Putting your assets into a Trust can be useful in guaranteeing that the people you want to receive them actually do get them, because you say who the beneficiaries are. In addition, you can also stipulate how the assets can be used by the beneficiaries and it’s the Trustees’ responsibility to ensure this happens.

For example, if you want to pass on money or assets to your children, but you want to make sure they only benefit from them when they’re adults, you may set a rule that they don’t receive anything from the Trust until they reach the age of 25. You can also decide what they spend your money on. So, if you want them to use it to buy a property, rather than on a lavish trip to Las Vegas, for instance, you can stipulate that.

Writing Life Insurance into a Trust

If you have a whole of life insurance policy, writing this into a Trust can help your family to avoid IHT costs when you die. If the policy isn’t in a Trust, the pay-out is regarded as part of your estate, so IHT may apply on it. But if it’s in a Trust, just like any other asset in a Trust, it’s not part of your estate. Putting the policy into a Trust can also help your family to avoid any probate processes when you die. Probate can be time-consuming and costly, so avoiding it can help them to receive any payments quicker, which could be a major advantage.

Property in Trust

Putting property into a Trust for tax purposes can be a complex business, depending on the nature and value of the property and who is living in it while it’s in the Trust. We’d always advise you to seek professional advice before considering this option.

Avoiding unnecessary conflict

In many cases, putting your assets into a Trust rather than distributing them through your Will can help to avoid family arguments and someone contesting your Will. If you have a complex family situation, for example, with children from different relationships, a Trust can help to clarify exactly how you want your assets to be divided up.

The Tax Implications of a Trust

There may also be other tax implications that you need to take into account. For example, beneficiaries may have to pay income tax on any payments they receive from a Trust and if the Trustees decide to sell any of the assets – for example a property held in Trust – there may be Capital Gains Tax implications, too.

Finding a reliable Trustee

Setting up a Trust can sometimes be complicated – particularly if your reasons include making sure that your loved ones receive the maximum benefit from the Trust after you’ve passed away. You need to make sure you choose reliable Trustees who you can be sure will follow your wishes. This means you might find it difficult to find someone you’re happy with, who is also willing to take on the responsibility.

Talk to us

Setting up a Trust may help to reduce your IHT liability, but you need to take a lot of different factors into account before you decide if it’s the best approach for you. Without expert advice, it can be difficult to balance the pros and cons effectively and come to the right decision.

At Grosvenor Wealth Management, we’ll sit down with you to talk through your individual circumstances, weigh up the potential advantages and disadvantages and advise you on all the implications and possible alternatives, so you can make an informed decision.

PLEASE NOTE: Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. The value of investment can go down as well as up and you may not get back the original amount you invested. Tax treatment is dependent on individual circumstances and may be subject to change. Tax planning is not regulated by the Financial Conduct Authority.