Trusts and IHT - Are they worthwhile?

[Maxus]

Sadly, my father in law has died. A proper gent who was very organised and thorough.

He leaves his wife and 3 children. He left a will and also spoke to his solicitor about a sum of £325k which could be put into a trust for the 3 children.

The solicitor says there are pros and cons of putting this into a trust. I'm wondering if anyone here has any view or experience of trusts?

The estate, including the family home, outside this value passes to his wife. As I understand it, there is no IHT to pay here.

My primary question is, if the £325k is put in a trust IHT free, is this then in addition to the full £500k x 2 (£1m) that can be passed to the children upon mothers death? How can you access money in a trust maintaining some tax benefit?

The total estate will be in excess of £1m if no significant long term care costs are required for mother.

Just starting on the process and we will get advice but I like to go in armed.

All views greatly received.

[C69]

Maxus said:

He left a will and also spoke to his solicitor about a sum of £325k which could be put into a trust for the 3 children.

So-called Will Trusts were a popular way to reduce IHT liabilities in the days before any unused portion of the nil-rate band (currently £325k plus the residence nil-rate band, if applicable) could be 'passed on' to a spouse.

However, as the name suggests, they had to be specified in a will. Your solicitor seems a bit vague on this when he says £325k "could be put into a trust..." Either your FiL's will states that this is what should happen, or it doesn't!

Unless the solicitor is suggesting that the FiL's wife now sets up a trust to reduce her estate's potential IHT liability? If so, you'll need to consider entry charges, ten-year charges, exit charges and numerous other tax rules. Then there are the costs of setting up the trust and managing the investments that it holds.

[PistonHead007]

Maxus said:

My primary question is, if the £325k is put in a trust IHT free, is this then in addition to the full £500k x 2 (£1m) that can be passed to the children upon mothers death?

No.

If your FiL puts £325k into a trust then this will use up his £325k Nil Rate Band (NRB).

On second death there'll be two lots of Residence Nil Rate Band (RNRB), which is £350,000 combined, plus your mother's NRB giving a total of £675k before IHT applies on second death on the rest.

[Maxus]

Thanks gents, appreciate the comments.

It’s sister in law who spoke to the solicitor so all a little vague at this point. There isn’t anything in the will about values but it is the language being used by the solicitor of considering putting into trust being mindful of pros and cons that suggests it’s a choice.

007 - if this is taken from the IHT allowance I can’t see the benefit. All children are adults so the protection element isn’t required.

The will is dated 2009 so maybe it was more beneficial to do this prior to the residence allowance being added?

I just can’t see any benefit now if there is a choice.

[Maxus]

Thanks gents, appreciate the comments.

It’s sister in law who spoke to the solicitor so all a little vague at this point. There isn’t anything in the will about values but it is the language being used by the solicitor of considering putting into trust being mindful of pros and cons that suggests it’s a choice.

007 - if this is taken from the IHT allowance I can’t see the benefit. All children are adults so the protection element isn’t required.

The will is dated 2009 so maybe it was more beneficial to do this prior to the residence allowance being added?

I just can’t see any benefit now if there is a choice.

[Sheepshanks]

C69 said:

Unless the solicitor is suggesting that the FiL's wife now sets up a trust to reduce her estate's potential IHT liability?

I would guess it's this. Putting the money into a trust freezes the date for IHT purposes so hopefully 7 yrs can pass.


ETA: Seems slightly odd to do it for adult children - were the children under 18 when it was first discussed?

Only reasons I can think of to do it now, vs just giving the children the money, would be to retain control of it (in case it's needed) and keep it away from childrens' partners. My wife and I have trusts with each other and our adult children as beneficiaries for those reasons.

Edited by Sheepshanks on Saturday 21st June 11:11

[Smidge001]

I think the benefit of these wills is that the 325k is protected from potential future care home fees for the surviving partner, as it is no longer in their name.

[The Gauge]

Smidge001 said:

I think the benefit of these wills is that the 325k is protected from potential future care home fees for the surviving partner, as it is no longer in their name.

But doesn't that have to be done well in advance of that person needing to go into a care home, as the local authorities can audit trail the money and deem it being purposely moved to deprive them?

Venturing off topic maybe, but it's not just care home fees that gazump a persons estate, it's also care they might need at home.

I understand social care (help getting out of bed, washing etc) has to be paid for, but health care is free.
After quite a tough battle we have secured full NHS funding for my terminally ill & bed bound elderly mother who needs carers visiting her day & night, despite her being considerably over the £23k threshold. This is because her need for social care (getting out of bed before she became bed bound, washing, incontinence etc) is as a direct result of her poor health, so her social care is free of charge. The local authority send us copies of the invoice that the NHS receive and the figures are quite eye watering!!

Edited by The Gauge on Tuesday 24th June 11:32

[tele_lover]

The Gauge said:

Smidge001 said:

I think the benefit of these wills is that the 325k is protected from potential future care home fees for the surviving partner, as it is no longer in their name.

But doesn't that have to be done well in advance of that person needing to go into a care home, as the local authorities can audit trail the money and deem it being purposely moved to deprive them?

Venturing off topic maybe, but it's not just care home fees that gazump a persons estate, it's also care they might need at home.

I understand social care (help getting out of bed, washing etc) has to be paid for, but health care is free.
After quite a tough battle we have secured full NHS funding for my terminally ill & bed bound elderly mother who needs carers visiting her day & night, despite her being considerably over the £23k threshold. This is because her need for social care (getting out of bed before she became bed bound, washing, incontinence etc) is as a direct result of her poor health, so her social care is free of charge. The local authority send us copies of the invoice that the NHS receive and the figures are quite eye watering!!

Edited by The Gauge on Tuesday 24th June 11:32

I'm sure I read somewhere that local authorities only check the previous 3 months of finances.

I could be wrong though

[Shnozz]

Maxus said:

Thanks gents, appreciate the comments.

It s sister in law who spoke to the solicitor so all a little vague at this point. There isn t anything in the will about values but it is the language being used by the solicitor of considering putting into trust being mindful of pros and cons that suggests it s a choice.

007 - if this is taken from the IHT allowance I can t see the benefit. All children are adults so the protection element isn t required.

The will is dated 2009 so maybe it was more beneficial to do this prior to the residence allowance being added?

I just can t see any benefit now if there is a choice.

If the will was 2009, it might be simply the case there was a trust written into that will that has since become redundant. My Mum's will was dated 2008 and the solicitor who dealt with probate suggested a deed of variation to effectively remove the trust element as the nil rate bands made any trust element unnecessary to transfer all her assets free of inheritance tax to her surviving spouse (my Dad).