Inheritance Tax Trusts
We may believe we know already what inheritance tax trusts are. Somewhere in the depths of our minds we may have an image of wealthy people stashing away their ill-gotten gains in offshore tax havens in some complex way that puts their family’s inheritance beyond the reach of the inland revenue even when they can no longer gain from it themselves. Whatever they do, it’s not something that need concern us, because we’re not one of those filthy rich that need to worry about such things.
This couldn’t be further from the truth, though. Inheritance tax affects a surprising number of people in these times of increasing property values. When you bought your property it may well have been under the £325,000 tax threshold but did you realize that the average price of a detached house in the UK was £330,292 in March 2013, according to the BBC website?
So anyone owning a detached house anywhere in the UK is increasingly likely to be caught out over the threshold of inheritance tax as the years go by. What we all have to realize is that, as life expectancy keeps on going up, the value of our property at the point of life’s culmination also keeps increasing. According to Age Concern in a new factsheet released in August 2013, women can now expect to live until they are over 85 and men until they are 83. So any proposed calculation about inheritance tax should take account of this.
Inheritance Tax Trusts, therefore, are not just a strategy for passing on the inheritance of the top 0.1 percent of the population. They have become an essential part of financial planning for a growing number of ordinary families, just like yours and mine.
If you own a sizeable property or have smaller properties that you rent out whose combined value would place you over the inheritance tax threshold then you would be well advised to plan your inheritance wisely and think about what is involved in setting up trusts.
The first thing you need to be aware of is that Inheritance Tax Trusts require trustees to take care of the assets within the trust and be responsible for keeping their long term value high. This way, an inheritance can be passed on to the beneficiaries at a greater value than when it first entered the trust without having to pay capital gains on it as well. This means that any of your assets that are put into a trust are the trustee’s responsibility, who has a duty to care for the vale of the inheritance, and will not be your responsibility anymore.
Since you are not going to be around at the time the benefits of the trust are passed on to your beneficiaries you cannot be a trustee for your own inheritance tax trust. So you need to decide who you can rely on to act as trustees.
Since Trusts must be created and stay operating while you're still alive there is also a seven year guideline on most types associated with the avoidance of inheritance tax. This means that you must plan for your demise in good time.
This doesn’t mean, however, that you cannot live in your property once it has been taken into a trust. It simply means that you are no longer the owner, the trust is. Setting up inheritance tax trusts is straightforward but needs careful consideration and guidance.
Through the experience we have gained helping many families to plan for the minimising of inheritance tax you can be assured that we can guide you through the process for your family. Please contact us right away if you would like to discuss setting up an inheritance tax trust for the benefit of your children and grandchildren.