Inheritance tax dodge?

My brother in law has just added an amendment to his will which he believes will reduce the IHT his three children pay without impacting on either himself or his wife. I wondered if any experts in this group could comment on the efficacy and/or side effects of his amendment.

Essentially, both he and his wife bequeath the IHT limit (263k at the moment) to their three surviving children to be held in trust by the surviving spouse until that spouse's death.

The thing that confuses me is this "held in trust" business. If the money is to be held in trust then does this not mean that the surviving spouse is not free to dispose of their assists in any way they choose? Is it not a requirement of this type of arrangement that the 263k be placed in a separate account administered by a third party. I mean, if the surviving spouse has full access to the bequeathed amount then in what sense is it already owned by the children and therefore immune from further IHT?

Sounds to good to be true to me

Steve

Reply to
Steve
Loading thread data ...

Depends upon the terms of the trust.

But here we are less than 26 hours away from the start of the Budget. So IMHO not too sensible to be discussing long-term IHT planning.

Reply to
John

By himself, or did someone advise him.

Many have tried, most fail.

good

Which is to achieve what? If this leaves the funds in a state that the survivor still has use of them, then it won't work for IHT. If it puts them in a state such that the survivor cannot use them, then why not just give it to the kids (at least then there is the possibility that the chirdren will then have a more favorable financial relationship with the survivor) (it still might not work BTW).

of course, they don't belong to them any more. The best that they can expect is having an interest in the money (but if they do, it will void the IHT benefit)

probably, but this still isn't going to be enough to avoid IHT.

Yep. This simplistic system won't work. In fact it often ends up increasing the tax liability, not reducing it.

tim

Reply to
tim

He, not his children, would pay IHT.

Would fail in this case too. Any money left to the children ipso facto impacts on the surviving spouse, because that money then belongs to the children, and the surviving spouse can't spend it.

It's a well-established IHT minimisation technique, though, to leave the tax-free amount directly to the children instead of everything to the surviving spouse, since that way, when the surviving spouse eventually dies, only one nil-rate band can be made use of instead of two.

I suspect the problem is that the kids are still too young to be trusted not to spend the money unwisely, and it's usual to hold the money in trust until they reach a certain age (18, 21 are popular choices), but in such a way that the trustees can't spend it, they can only "manage" it, e.g. by investing in whatever terms the will provides, be it in pork belly futures or safe savings accounts.

Reply to
Ronald Raygun

Many thanks

So in your view then, it is necessary to lay down the details of said "trust" in order for it to have the desired effect. Simply stating that it is "to be held in trust" without specifying the detailed conditions of that trust is unlikely to achieve the desired effect?

Thanks again Steve

Reply to
Steve

Thanks to Ronald and Tim (I haven't seen Tim's original post yet)

Yes, the children are still young and yes the amendment was drawn up by my bro-in-law himself (after attending an IHT seminar). The wording is very simple and just says "held in the trust of my wife and will not be paid from the estate until her death"

I'm not a lawyer but this seems totally void to me since the children don't actually receive any money or benefit at the time of the first spouse's death. And the surviving spouse doesn't lose anything to the children - so in what sense is a bequeath to the children being made at the time of the first spouse's death?

The thing which prompted the amendment was a forthcoming foreign holiday which involved a airplane journey for my two in-laws. The primary idea then was to cover the eventuallity that both parents could be killed together. However it's surely not possible to word a Will such that the children unconditionally receive an IHT allowance from the first death provided the second death occurs within a "short" time of the first. Or is it?

Thanks again Steve

Reply to
Steve

One word of warning...

If the assets of this trust are intended, among other things, to hold the deceased's half of the family home then there is every possibility that this gift to the trust will be deemed null and void when the surviving spouse dies if he/she was the only person remaining in that property as he/she will have been deemed to have gained a disproportionate benefit from that gift to the trust.

If the family home is to be involved, the only sensible way to deal with it is for the executor to trade the property with the surviving spouse in return for a charge over the property that will be repaid either from his/her estate upon death or from the sale proceeds should the house be sold (whichever comes first) - then it is the debt arising from this trade that goes into the trust, not the property. However, that said...there is currently some uncertainty over stamp duty and the like arising from such a a deal which AFAIK is currently being tested in court.

Also, make sure that the surviving spouse is not an executor of the will otherwise a conflict of interest may arise that could potentially invalidate the transaction in the eyes of the tax office. To be absolutely safe, the trade should be an arms-length one where the surviving spouse cannot (theoretically speaking) influence the executor's administrative decisions hence the need to ensure that she herself is not an executor.

IANAL and I'm also not qualified to give financial advice - the above is simply something I'm currently discussing with our family lawyer.

RM

Reply to
Reestit Mutton

Oh great .... a good candidate for Worst Drawn Up Will of the Year award!

Highly unlikely to be IHT effective.

Reply to
John

Been researching this myself recently for my parents.

It revolves around using a Discretionary Trust Will which uses the Nil Rate Tax Band from both spouses to take advantage of two lots of £275,000 (today's budget). The other main factor is with respect to the joint property, (often a substantial part of an estate), the husband and wife must be Tenants in Common rather than Joint Tenants.

It's all explained rather well on

formatting link
select the Discretionary Trust Wills option on the left hand frame and then the 'read this document' link towards the bottom of the page.

There are other sites which explain it, but I found this one of the best and will be using it in helping my parents re-write their wills.

I've no connection with the 10minutewill company.

Regards __ Richard Buttrey Grappenhall, Cheshire, UK __________________________

Reply to
Richard Buttrey

"Richard Buttrey" wrote in message

Many thanks - I'll pass this on

Steve

Reply to
Steve

and note the problems that the poster in another current thread is having with a Discretionary trust. The key word is Discretionary. The trustees can virtually do whatever they like with the money, they don't have to give it to the offspring on the death of the second parent.

tim

Reply to
tim

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.