Trusts are a winner in the future generation game
INHERITANCE Tax (IHT) is widely regarded as a form of voluntary tax. “The Nil Rate Band is currently at £325,000 and has been since 2010,” says Keith Miller of Capital Managers. “But from April 2017 we saw the introduction of a ‘family home allowance’ in addition to the Nil Rate Bond, which effectively increases the NIL Rate Band per person by £100,000. This will steadily rise to £175,000 by 2020 giving individuals, in theory, the ability to distribute assets up to £500,000, provided their main residence forms part of this. The IHT rate remains at 40 per cent of assets above this value.
“IHT planning is not just about reducing the impact of IHT on your estate; it is about ensuring the right people receive your assets once you are gone.
“There are two distinct methods of reducing the impact on your estate. With the ‘easiest’ method, you can look to arrange your affairs to minimise the impact of IHT; or alternatively you can make arrangements to fund for the IHT bill, ensuring that it is paid and the remaining estate is passed to your beneficiaries. For many, a combination of both can be a sensible solution.
“Rather than making gifts outright, the use of trusts can be very beneficial in ensuring that your wishes are adhered to during your lifetime and after death. This can provide people with the opportunity to create a legacy for future generations, covering things such as school fees, university costs.
“There are also a number of trust solutions that allow people to set aside capital for future beneficiaries, whilst continuing to enjoy an income in their lifetime, which can be important for those who require a level of income from their assets.
“Trusts often sound complicated, but they are simply a means of creating a structure which can con- tinue after your demise. A good solicitor can provide bespoke trusts, but for simple requirements there are some very useful ‘off the shelf’ trusts that run alongside investment solutions for clients.
“In an era of ageing demographics, it is also becoming more common for people to gift assets to grandchildren and children during their lifetime. There are a number of annual exemptions and reliefs and where these are used it makes sense to document them.
“For many, a good level of IHT planning can be achieved without having an impact on their income or needing to drastically overhaul their finances.”