Trusts

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What is a Trust ?

A trust is a binding arrangement under which a person gives money or property ‘upon trust’ to another person or persons, who are known as ‘trustees’. That trustee can also be a beneficiary.

The trustees use the trust fund for the benefit of an individual or group of individuals, who are known as ‘beneficiaries’. The trustees then have to look after the trust fund for the beneficiaries. These arrangements are usually set out in a trust deed that you make before you die, or in your Will, which means the trust will start on your death.

Trusts are not new. They have been used for over 600 years to protect and preserve family wealth within traditional estate planning structures. They are not just for the very wealthy. Trusts are now available for everyone wanting to protect their assets.

Property Protective Trust

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Discretionary Trust

With a discretionary trust, your beneficiary is not technically ‘entitled’ to money from the trust. This means that:

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Nil Rate Band Inheritance Discretionary Trust

The Nil Rate Band is the amount you can give away during your lifetime or via your Will, (after you have passed away), before Inheritance Tax becomes payable, at a flat rate of 40%. The Nil Rate Band is currently £325,000 per person. In addition if you own a residential property, there is potentially a Residential Nil Rate Band maximum of £175,000 in addition.

Married Couples

Since 9th October 2007 married couples receive an automatic transfer of any unused portion of the first to die’s Nil Rate Band. This works to automatically increase a married couple, or civil partners, joint IHT allowance to £650,000 plus the potential of a Residential Nil Rate Band to a maximum of £175,000 in addition for each.

Unmarried couples

Unfortunately, there is no such concession for unmarried couples. If they leave all their estate to each other, then not only could there be an IHT liability on first death, but on second death only one Nil Rate Band is available to reduce the taxable value of the whole estate.

The Nil Rate Band Discretionary Trust works to allow the survivor access to the deceased’s assets. At the same time creating a debt on the survivor’s estate. This in turn reduces the taxable value of the survivor’s estate. Therefore the IHT payable is reduced by up to £130,000.

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