Why do I need to consider inheritance tax when setting up a will or trust? 

Why do I need to consider inheritance tax when setting up a will or trust? 
April 23 16:59 2020 Print This Article

It can seem unfair that tax would still apply to the money and assets that you leave behind, but inheritance tax is something that is a pertinent thing to keep in mind when you are sorting out what you are going to leave behind to your family. There are ways that can maximise the amount that your loved ones will be able to receive, and the help of dedicated wills, trust, and probate specialists can be important in assisting you with this. 

In British law, trusts originally date back to the 18th century, under the reign of King George I. They were originally established with the idea that they were a parallel justice system that addressed issues that arose with property disputes. These days, trusts are still seen as a way of being able to protect assets from problematic clauses in the law that may deplete the overall sum. 

Setting up a trust 

Knowing where to start when setting up a trust can seem confusing because there are a number of different forms of trust that exist, including; 

  • Bare Trusts 
  • Interest in Possession Trusts
  • Discretionary Trusts
  • Accumulation Trusts
  • Mixed Trusts
  • Settlor-Interested Trusts
  • Non-resident Trusts

There are three main roles within a Trust. These are: 

  • The ‘Settlor’, who puts the assets into the Trust

The Settlor is also able to decide how any assets in a Trust should be used. They will usually have to confirm this in a legally binding document called a ‘Trust Deed.’ 

  • The ‘Trustee’, who manages the Trust 

They are the legal owners of any of the assets that are held within the Trust, and they must carry out any dealings in line with what the Settlor has written in their Trust Deed or Will. Trustees also have the responsibility to pay any Tax due from the Trust. There can be multiple Trustees, but there must always be at least one. 

  • The ‘Beneficiary’, who benefits from the Trust 

Beneficiaries can benefit from either the income from a Trust, the capital from a Trust, or both. The income might be rent from a property included as an asset in the Trust, and the capital might be a share in the value of a Trust when they reach a certain age. There can be multiple beneficiaries included in a Trust. 

How to avoid inheritance tax on property 

One of the main benefits of setting up a trust is being able to reduce the amount of inheritance tax that you would have to pay on everything that you want to leave behind. If you find that a trust wouldn’t be the right option for you, a few other options on how to avoid inheritance tax on property include: 

    • Making a gift to your partner 

  • Give to family members or friends 
  • Leave money or assets to one or multiple charities
  • Take out life insurance

What happens when someone dies without a will? 

Intestacy is what happens when someone dies without a will. Intestacy solicitors will be helpful in guiding any loved ones through the process of sharing out any estate according to the rules of intestacy. There are specific rules about who can inherit through intestacy. Those who can inherit are: 

  • Married and civil partners – as long as they are actually married or in a civil partnership with the deceased at the time of their death 
  • Informally separated partners. 
  • Children of the intestate person – the whole estate if there is no married or civil partner, or, a share of the estate if it is valued at over £250,000 and there is a surviving spouse or civil partner. 
  • Children whose parents are not married or haven’t registered a civil partnership 
  • Parents, brothers, sisters, nieces and nephews of the intestate person, but only in certain circumstances. 

Those who can’t inherit under intestacy rules include: 

  • Divorced or dissolved civil partners 
  • Cohabiting partners 
  • Children of the intestate person if the latter had a married or civil partner – unless the estate is worth over £250,000 in which case they will receive a share. 
  • Close friends 
  • Carers 

Whilst intestacy means that there is a way for affairs to be sorted out if you die without leaving a will, it is always the best idea to leave a will that details everything that you would want to be carried out in your absence.  

  Categories:
view more articles

About Article Author

write a comment

0 Comments

No Comments Yet!

You can be the one to start a conversation.

Add a Comment