Use of Trusts in Inheritance Tax Planning

Had the Grosvenor estate bequeathed to the new Duke of Westminster been liable to pay Inheritance Tax (IHT) at the rate of 40%, the amount owed to the Treasury would almost have been equal to the entire death duty take for the last financial year.

However, due to the use of trusts, the majority of the Duke of Westminster’s estate will be exempt from IHT. Many are now asking if they too can benefit from these tax savings. 

When the Duke of Westminster passed away recently, he left behind an estimated £9billion estate.  The estate passes to his only son under the rule of primogeniture, despite the Duke also leaving behind three daughters.

Assets held in his sole name and passing directly to his son will attract a 40% Inheritance Tax (‘IHT’) charge.  It is thought, however, that substantial trust funds are in place to benefit the rest of his family.  The use of Discretionary Trusts created during his lifetime means that many assets will fall outside of his personal estate for tax purposes and therefore be exempt from IHT on death.

Those Trusts will have been costly to set up, with a likely IHT charge of 20% when assets were put into Trust and ongoing tax charges every ten years, due to the sums of money involved.

That said, Discretionary Trusts are not just for the rich and famous.  By transferring less than £325,000 into the Trust, it will not be subject to initial or ongoing tax charges.  Trusts can be a very useful tool to ‘ringfence’ assets from threats to beneficiaries such as divorce.  The Trustees have ultimate discretion and control as to which beneficiaries should benefit, when, and in what way from the Trust.

At Forbes Solicitors, our team of Wills, Probate, Tax and Trusts Solicitors can advise on setting up Trusts during your lifetime and the potential IHT consequences. Should you require any further information, please contact Lorraine Wilson in our Wills, Probate, Tax and Trusts Department on freephone 0800 975 2643 or send any question via our online contact form.

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