Discussion
Hi All
We have an IFA we have been using suggesting we start 2-3 trusts to stop our property and pension being gobbled up by inheritance tax should anything unfortunate befall me and/or Mrs Blue One (we have two kids). We're far from being in the rich bracket, and what I understand about personal trusts is that they are a bit like a limited company and are subject to annual tax declarations and admin charges.
I'm frankly sceptical whether on our level of income/assets this makes sense and is just a wooze by this IFA to get some extra business.
Any expert views on this would be appreciated
Thanks
We have an IFA we have been using suggesting we start 2-3 trusts to stop our property and pension being gobbled up by inheritance tax should anything unfortunate befall me and/or Mrs Blue One (we have two kids). We're far from being in the rich bracket, and what I understand about personal trusts is that they are a bit like a limited company and are subject to annual tax declarations and admin charges.
I'm frankly sceptical whether on our level of income/assets this makes sense and is just a wooze by this IFA to get some extra business.
Any expert views on this would be appreciated
Thanks
Depends on so many things that it needs specialist advice really
You are right to be cautious, but don't rule it out without considering it properly, including understanding just how much the advisor stands to make from the gig
Maybe ask the advisor for a 1 page summary of the position now versus the position with the trusts in place & all associated set up / ongoing fees
You are right to be cautious, but don't rule it out without considering it properly, including understanding just how much the advisor stands to make from the gig
Maybe ask the advisor for a 1 page summary of the position now versus the position with the trusts in place & all associated set up / ongoing fees
Blue One said:
Hi All
We have an IFA we have been using suggesting we start 2-3 trusts to stop our property and pension being gobbled up by inheritance tax should anything unfortunate befall me and/or Mrs Blue One (we have two kids). We're far from being in the rich bracket, and what I understand about personal trusts is that they are a bit like a limited company and are subject to annual tax declarations and admin charges.
I'm frankly sceptical whether on our level of income/assets this makes sense and is just a wooze by this IFA to get some extra business.
Any expert views on this would be appreciated
Thanks
I would be reconsidering paying this IFA.We have an IFA we have been using suggesting we start 2-3 trusts to stop our property and pension being gobbled up by inheritance tax should anything unfortunate befall me and/or Mrs Blue One (we have two kids). We're far from being in the rich bracket, and what I understand about personal trusts is that they are a bit like a limited company and are subject to annual tax declarations and admin charges.
I'm frankly sceptical whether on our level of income/assets this makes sense and is just a wooze by this IFA to get some extra business.
Any expert views on this would be appreciated
Thanks
Pensions are already outside of your estate for IHT purposes.
Setting up a trust to stop a pension from being subject to a tax it is not subject to in the first place is sheer madness.
With regard to your property, you have both of your full IHT allowances to consider before there is any tax to pay.
If you would like me to give you an overview without you posting personal financial details here please feel free to PM me.
Your IFA either doesn't know what they are talking about or, perhaps worse, does and is simply trying to extract more fees from you for no good reason.
Ken Figenus said:
I really need a strategy......
Indeed. Today's newspapers report a surge in IHT income for the treasury - because anyone living in the South East who owns a house gets financially raped when they die. The main home allowance barely scratches the surface.A strategy that should never be ignored is simply "giving stuff away" and then staying alive for 7 years or so. Advisers rarely have much to say about this one as it generates no income for them whatsoever.
The key point IMO before giving stuff away is whether you trust people. Regrettably there's inevitable risk of a marriage going wrong and some third party walking off with 50% of your generous gift. But there's no guarantee that even setting up trusts will escape that one.
If you can afford it, give your house to the kids and then pay them rent to live in it. This can usefully address the "elderly care" risk as well as avoiding the IHT. Meanwhile they can be investing in tax-relieved ISAs and SIPPs to look after you in your old age and plan for their own financial futures.
Which sounds better?
- It's easy to avoid IHT - all you have to do is trust people.
- It's hard to avoid IHT - unless you're willing to trust people.
I expect you have the wrong end of the stick. Whilst Julian is correct about the pension not directly being subject to IHT there can be benefits of the trusts, I.e. it could be that on first death the lump sum death benefit paid before the pension is used by the first life could be paid to a trust, the survivor could take loans from the trust and therefore, on paper, need to repay that on second death, thus reducing the estate of second.
I expect the other two trusts would be nil rate band family trust and then an interest in possession, these can have huge benefits for mitigating iht, protecting the estate from marriage and divorce after second death and protecting the property from long term care fees.
The crag report shows that where a property is not wholly owned by one person the effective value of less than a whole property is nil. First death 50% of property is directed to the trust, survivor owns the other 50%, the effective value of the house is nil for means testing and no deprivation has occurred as the deceased directed to the trust and not the survivor....all perfectly legal and used very often.
I expect the other two trusts would be nil rate band family trust and then an interest in possession, these can have huge benefits for mitigating iht, protecting the estate from marriage and divorce after second death and protecting the property from long term care fees.
The crag report shows that where a property is not wholly owned by one person the effective value of less than a whole property is nil. First death 50% of property is directed to the trust, survivor owns the other 50%, the effective value of the house is nil for means testing and no deprivation has occurred as the deceased directed to the trust and not the survivor....all perfectly legal and used very often.
An often missed benefit of trusts can be the generational IHT...without them you could leave a load of cash to children taxed on death and then when they pass on to your grandchildren the tax is paid again based on the estate of your children, this can be avoided.
The trust has a life "perpetuity" of 125 yrs. Mr puts his half of the estate (let’s say £325k) in to family trust on first death and the Mrs puts £325k in on her death to another trust, these trusts can now pass from generation to generation free of iht for the remainder of the 125 yrs, loans can be granted to beneficiaries and the trust assets are protected from creditor claims, divorce and long term care testing. If the trusts are set up today with £10 deminimus then they do not need to do any tax returns etc until population after the death.
The trust has a life "perpetuity" of 125 yrs. Mr puts his half of the estate (let’s say £325k) in to family trust on first death and the Mrs puts £325k in on her death to another trust, these trusts can now pass from generation to generation free of iht for the remainder of the 125 yrs, loans can be granted to beneficiaries and the trust assets are protected from creditor claims, divorce and long term care testing. If the trusts are set up today with £10 deminimus then they do not need to do any tax returns etc until population after the death.
What fees? You don’t give up any of the pension protections by directing the potential funds to trust on death and all pensions sit within one trust or another...just filling in the expression of wish is a trust.
97% of life insurances are not assigned to trusts yet the insurance companies provide the free of charge.
You pick a good trustee(s) often you, your spouse and then someone you trust or the kids if old enough and sensible. One of my most trusted friends is trustee for my daughters trusts, he is a very successful IFA and has an impressive supercar collection, I trust him to make more money than I can with my assets.
97% of life insurances are not assigned to trusts yet the insurance companies provide the free of charge.
You pick a good trustee(s) often you, your spouse and then someone you trust or the kids if old enough and sensible. One of my most trusted friends is trustee for my daughters trusts, he is a very successful IFA and has an impressive supercar collection, I trust him to make more money than I can with my assets.
Edited by Caddyshack on Friday 20th September 19:52
If your parents own a £150k flat and one dies, the other needs long term care then you get zero. If they used a trust structure they get the care, can pay if they like and if not the flat is protected, if that costs £5k then you have saved £145,000. The bigger the numbers the bigger the savings.
My grandfather was worth £1m to £2m in the 90’s, it was a lot then. He went in to a home at £1500 per week, would be a lot more now. Over 15 yrs in there was not a lot left. Simple trusts would have preserved the money. He did not have a clue where he was or what money was.
My grandfather was worth £1m to £2m in the 90’s, it was a lot then. He went in to a home at £1500 per week, would be a lot more now. Over 15 yrs in there was not a lot left. Simple trusts would have preserved the money. He did not have a clue where he was or what money was.
Caddyshack said:
What fees?
Come on, let's be straight with the people here. You're not going to run a suite of trusts for pennies. Lawyers, accountants, investment managers - everbody wants their slice of pie.Realistically, at what sort of wealth does this stuff start to make sense? It's all very well talking about "nil rate band trusts" but that means £325,000 in folding money to get to the starting line. Sure, you could do it from a smaller starting point but suddenly all of the fees add up to a bigger percentage of the pot.
Something I’m looking at currenlty and most firms will give you some time for free to discuss what they can do.
Also worth noting that any potential large CGT bills on properties is wiped clean on death. Maybe worth letting these properties pass upon death, rather than using the 7-year rule, subject to the size of your estate etc.
Also worth noting that any potential large CGT bills on properties is wiped clean on death. Maybe worth letting these properties pass upon death, rather than using the 7-year rule, subject to the size of your estate etc.
Edited by Agricola on Friday 20th September 20:51
rockin said:
Come on, let's be straight with the people here. You're not going to run a suite of trusts for pennies. Lawyers, accountants, investment managers - everbody wants their slice of pie.
Realistically, at what sort of wealth does this stuff start to make sense? It's all very well talking about "nil rate band trusts" but that means £325,000 in folding money to get to the starting line. Sure, you could do it from a smaller starting point but suddenly all of the fees add up to a bigger percentage of the pot.
Once set up there are zero running costs. Simple tax returns once populated after death. If you can protect a £100 house from long term care is that not worth a one off £2k?Realistically, at what sort of wealth does this stuff start to make sense? It's all very well talking about "nil rate band trusts" but that means £325,000 in folding money to get to the starting line. Sure, you could do it from a smaller starting point but suddenly all of the fees add up to a bigger percentage of the pot.
You do not need a lawyer, accountant or investment manager to run a trust. In fact not one of them is interested in a property held in trust and why should they? There are no funds under management fees to earn (that’s why a lot of IFAs are not aware or interested) I work in financial services btw. And accountants cannot get fat on a simple tax return. Lawyers don’t spend a lot of time on trusts, there is not a lot of money in it...better off on a juicy divorce or legal battle.
Agricola said:
Something I’m looking at currenlty and most firms will give you some time for free to discuss what they can do.
Also, worth noting that any potential CGT on properties is wiped clean on death, any properties you may have subject to a large CGT, maybe worth passing upon death, rather than using the 7-year rule, subject to the rest of your estate.
Yes, good point.Also, worth noting that any potential CGT on properties is wiped clean on death, any properties you may have subject to a large CGT, maybe worth passing upon death, rather than using the 7-year rule, subject to the rest of your estate.
Just to add, if you asked me to set up anything other than a simple life assurance trust (few lines on a4) I would pass you to an expert, so I have nothing to gain from extolling the virtues. My family all have trusts, I do too. It is simple stuff but very in utilised which is why generally the govt leave them alone, there is very little tax leakage.
When the Queen dies we will not see a foxtons sign up to sell Buck Palace to pay the iht as she is the lifetime custodian, she benefits but won’t own it.
When the Queen dies we will not see a foxtons sign up to sell Buck Palace to pay the iht as she is the lifetime custodian, she benefits but won’t own it.
Perfect scenario.
Millionaire 70 yr old marries a 30 yrs old. He has 3 kids.
House owned tenants in common.
Will leaves 500k in family trust for the benefit of children (avoids the house being take for long term care), rest left in IiP trust for wife, trustees instructed to pat her a peppercorn income. Every 7 years after Mr death, trustees release 325k to trust for benefit of kids, money invested to grow.
Mrs lives 35 yrs after death, that’s 7 lots of 325k that can be released to the kids free of iht. All protected from divorce, credit commitments and long term care as long as trusts are employed.
All IHT free. Is that worth £5k with no ongoing costs?
Millionaire 70 yr old marries a 30 yrs old. He has 3 kids.
House owned tenants in common.
Will leaves 500k in family trust for the benefit of children (avoids the house being take for long term care), rest left in IiP trust for wife, trustees instructed to pat her a peppercorn income. Every 7 years after Mr death, trustees release 325k to trust for benefit of kids, money invested to grow.
Mrs lives 35 yrs after death, that’s 7 lots of 325k that can be released to the kids free of iht. All protected from divorce, credit commitments and long term care as long as trusts are employed.
All IHT free. Is that worth £5k with no ongoing costs?
Caddyshack said:
Periodic and exit charges do need to be planned for or mitigated but not a biggie
I'm absolutely not an expert but I did some back of a fag packet calculations (£325k in, 5% growth) and reckoned that at my age (51) it was much cheaper to buy term life assurance for 20 years than pay the periodic charge twice (£125k of cover for £150 a year for ten years as opposed to £12k periodic charge after ten years). I completely accept it is kicking the can down the road and not comparing apples and apples but as an IHT mitigation strategy, after moving pension assets into a SIPP, simply insuring against the risk is I think the easiest and simplest thing to do (other than spending the money)?Gassing Station | Finance | Top of Page | What's New | My Stuff