Using Trusts in Inheritance Tax Planning
By: Connor O’Daly | Posted: 10th December 2009
There are many ways of mitigating or avoiding the burden of Inheritance Tax but the most common way is to give away assets during your lifetime. Whilst this can be achieved by way of an outright lifetime gift, there may be reasons why this is not appropriate.
Why set up a Trust?
There are many different reasons why you may consider putting money into trust. The following are some of the main ones:
• To make prudent provision for your family and later generations in case of unforeseen circumstances.
• To assist in tax planning. Setting up a trust may help to reduce tax liabilities and can be especially helpful in minimising potential Inheritance Tax liabilities.
• To make a gift with conditions based on your wishes or the beneficiary's circumstances. You can set down guidelines on how your trustees should deal with the trust, and at what age and in what circumstances your intended beneficiaries can have full benefit from the trust.
• To protect assets. Where, for whatever reason, you think it appropriate that assets are placed in trust rather than allowing a beneficiary full freedom to dispose of them.
Planning. Planning can pay huge dividends when it comes to Inheritance Tax. You may not want to think about your death, but it is better to face it now and start planning, so your hard-earned assets pass to your loved ones, not the taxman.
Here are a few reminders on how to plan for Inheritance Tax sensibly:
MAKE a will now. This is the most fundamental piece of Inheritance Tax planning. And remember to keep your will updated. Consider Discretionary Trusts if your estate is likely to end up with a large bill.
WORK out your assets: You may not think that Inheritance Tax will hit your estate. Take into account everything you own and you might well find that it does. Then you can plan to cut your Inheritance Tax bills. Remember to review the value of your assets every few years or so to take account of growth.
CONSIDER gifts. If your calculations show that your estate is likely to face Inheritance Tax, then you might consider using your Lifetime gifts allowances to cut the size of your estate. Have any other gifts you have made in the past now exceeded the seven year rule, putting them outside your estate?
DO you need insurance? If despite all your careful planning, your estate is still likely to be liable for Inheritance Tax, consider taking out insurance to cover any eventual tax bill.
REMEMBER that should you wish to get involved in creating trusts you will need proper professional advice. The same goes for creating a Will. A badly-written Will is almost as bad as no will at all.
Asset Preservation Partnership LLP
Woodlands Farm Cottage, Woodlands Lane
Windlesham Surrey-GU20 6AT UK
c.odaly@asset-preservation.co.uk
http://www.asset-preservation.co.uk
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Tags: money, provision, benefit from, many different reasons, dividends, reminders, generations, beneficiary, beneficiaries, full freedom, unforeseen circumstances, tax bills, tax liabilities