Wills and Trust

Inheritance tax is charged at 40% on the balance over this threshold. Despite this, wills and trusts still remain an important estate planning mechanism for us all.

A straightforward Will giving everything to your spouse may avoid Inheritance Tax. You could have gifted away up to £325,000 (e.g. to children) without Inheritance Tax being payable and given the rest to your spouse, but this could leave your spouse in a difficult financial position.

As stated above, Nil Rate Band discretionary Trusts are no longer necessary for joint estates of less than £650,000 (2010/11) but they are of great importance in other circumstances. Nil Rate Band planning is not now normally considered for mitigation of Inheritance Tax however it is still used regularly to protect against some or all of the following situations.

SOME OF THE BENEFITS OF DISCRETIONARY TRUST SCHEMES ARE:

• Access to funds by surviving spouse.
• Interest free loans can be made to surviving spouse repayable on his or her death reducing their IHT liability further.
• Ensure that the assets held in trust are not assessed as capital of the surviving spouse should he or she require long term care.
• Guarantee that the trust assets pass to your children rather than a spouse’s new partner should he or she remarry.
• Protection to some extent against bankruptcy

IT IS ALSO NECESSARY TO CONSIDER THE FOLLOWING:

Joint assets pass direct to the surviving spouse and do not pass under the Will. These joint assets cannot be used to fund the Discretionary Trust Fund. It may be necessary to equalise your respective estates to ensure both spouses have sufficient sole assets to use the Nil Rate Band Discretionary Trust to best effect.

The largest asset owned in most instances is the family home. Often this is held by both parties as joint tenants. In order to ensure that each spouse has sufficient sole assets to satisfy the Nil Rate Band Trust it may be necessary to split the property equally between the couple. Each spouse would then own 50% each. Although the property would still be owned jointly with your spouse, the significant difference is that on the death of the first spouse the 50% share owned by them can then be used towards satisfying the Nil Rate Band Discretionary Trusts.

By specialist wording within the trust the surviving spouse can continue to own the whole property but the value of deceased’s share in the property will be out with the surviving spouse’s estate. The assets within such a trust arrangement will not be regarded as the spouses capital should he or she require Long Term Care.