Our expert Private Client team have been advising families on estate and wealth planning, including creating and maintaining trusts, for generations. Our team is led by the Firm’s Managing Director, David Edwards, who has over 35 years’ experience dealing with Trusts and is a member of the Society of Trust and Estate Practitioners.
A Trust is a legal document where one or more people (called ‘the trustees’) hold assets on behalf of, or for the benefit of, another person(s) (called ‘the beneficiaries’).
The beneficiaries benefit from the trust – it is written up and administered by the trustees.
A trust can allow you to retain control over the assets within it. You can make sure they are used for the benefit of whoever you choose – but you effectively give up ownership of them. They take many forms and can be very flexible in terms of mitigating different forms of tax. We can discuss with you what the best options are in your circumstances.
After changes introduced by the government recently, this has become one of the most popular forms of trust. You can ensure a number of different people benefit from the creation of a trust. Both income and capital can be paid to one or more beneficiaries at the discretion of the trustees.
There are IHT charges on creation, at 10-year intervals and upon exit, but at a fraction of the normal inheritance tax rate, and depending on the nature of the trust property may be exempt from IHT altogether. There are also CGT advantages. Income taxes are less straightforward.
They can also be very useful if a beneficiary has special requirements or needs.
Wills can be an excellent vehicle for creating trusts (for more discussion see the Wills section of this website). The FA2006 changes to IHT created two new kinds of trust that are only available in Ws, and only by a parent for his or her children.
Bereaved Minor Trust (BMT)
The BMT is a Will trust by a parent for his or her children with capital vesting by the 18th birthday. This trust carries no additional IHT burdens over the flat 40% charge on assets above the Inheritance Tax nil rate band so no entry, 10-year or exit fees.
71D (18-25) Trust
The 71D Trust is a variation of the BMT that provides an extended trust period up to age 25. The 71D trust also avoids the charge on creation and 10-year charges, but is subject to a modified exit charge based on the period from age 18 to exit up to age 25. Anything beyond that is a relevant property trust subject to the regular charging scheme.
There are some forms of trust that can no longer be created:
Accumulation and Maintenance Trust (A&M)
Once a mainstay of estate planning, especially among grandparents seeking to provide for their grandchildren, A&M trusts were stripped of their inheritance tax benefits by the Government as part of FA2006. From 22 March 2006 no new A&M can be established in excess of the available nil rate band. Of course, the distribution goals of an A&M can still be accomplished by a relevant property trust, albeit with the schedule of IHT charges.
Interest In Possession Trusts
Like A&M Trusts, new IIP trusts no longer offer the IHT benefits they used to. Under FA2006 IIP trusts established after 22 March 2006 are necessarily relevant property trusts, subject to the relevant property charging scheme-but with two exceptions. The first is for IIPs, or life interests, created by Will that give rise to the interest immediately. This is known as the Immediate Post Death Interest (IPDI). The second exception is for IIP trusts that were established from an IIP settlement that was in existence on 22 March 2006 and was changed before 6 April 2008. This Transitional Serial Interest (TSI) can effectively defer IHT charges for a generation by replacing a current IIP beneficiary with his or her children, but the availability of the TSI is largely dependant on the flexibility of the underlying trust. Current IIPs already in existence as at 22 March 2006, if unchanged, will be subject to IHT upon the death of the life tenant (the values aggregated into his or her estate).
Please note professional advice should always be sought from a trusts lawyer as to the tax advantages and disadvantages for your particular needs and circumstances prior to creating a trust.
Anyone can create a trust – and many who do so would like to create a legacy for the benefit of children or grandchildren. Many people would also like to mitigate inheritance tax bills, and trusts can be an excellent vehicle for doing just this.
Trusts can also be useful if you are concerned about the impact on your assets of divorce or bankruptcy – please feel free to contact us for more information.
David manages to combine solid legal advice with a very human and understanding approach.
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