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Inheritance Tax - Trusts

A Trust is set up by someone (the Settlor) gifting assets to Trustees who now legally own the assets which they hold on behalf of persons who the Settlor wants to benefit (the Beneficiaries). The Trustees must always act in the best interests of the Beneficiaries and are controlled by the terms of the trust rules.

There are several classes of Trust, each class being taxed differently.

Trusts offer the opportunity to reduce the potential liability to Inheritance Tax. They can be created during your lifetime or on death using your Will.

There are a number of advantages in using Trusts. A Trust could do some or all of the following for you:

• Any increase in capital within the Trust would be outside your Estate for Inheritance Tax purposes provided that you (the Settlor) are specifically excluded from benefiting from the Trust.
  
  
• Some Trusts allow the Settlor to enjoy an income from the Trust.
  
  
• After seven years all the original investments into the Trust could be outside your Estate for Inheritance Tax purposes.
  
  
• Some Trusts have the effect of removing some capital immediately from the Settlor’s Estate.
  
  
• Trust assets can be paid out to the Trustees before Probate is granted.
  
  
• Foreigners owning offshore assets can set up Trusts to protect them from being liable to Inheritance Tax.
  
  
• Through a Trust you can control who receives the capital and income and when it is received.
  
  
• Trusts are often regarded as being more certain than Wills if the Trustees are chosen carefully, as Wills are more likely to be challenged or could be changed by using a Deed of Variation.