Inheritance Tax  

Wills, probate, IHT and what advisers should know

  • To understand what is important about IHT planning.
  • To learn how various tools can help with IHT planning.
  • To understand what advisers need to know post-Ilott case.

Of course it will be down to the Court to decide if a claim is valid and also what a reasonable provision, on the individual facts of a case will be.

Tool 2: Trusts

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In general, trusts can have both tax benefits and offer the opportunity to gain greater ‘control’ over the distribution of wealth on death.

While the person placing the assets into trust (the Settlor) is not able to insist on who benefits, unless using a bare trust), they can write a letter of wishes which provides, a non-legally binding insight into the wishes of the settlor.

For example, the settlor may want the trust fund used for a house deposit, they may want all grandchildren to benefit, whenever they are born, or favour one child over another.

Using a trust during your lifetime may go some way in ensuring your wishes are carried out.

The distribution of trust assets against the terms of a trust would be a breach and could be legally challenged. Trusts are currently confidential, so unlike wills they do not become public knowledge.

This can be particularly important in a complex family situation, where on child is favoured over another or perhaps children or a spouse in a first marriage are provided for .

Trusts can also help to avoid the upcoming hefty probate fees. This is because assets which are held in trust are the legal property of the trustees not the individual so therefore probate is not required.

The importance of professional trustees

Appointing family members or friends as trustees is often viewed by many as the obvious choice, as family members are those closest to them and they believe they will ensure their wishes are carried out on their death.   

The research of over 45s showed 37 per cent of people who have been involved in a trust arrangement using friends or family members as trustees have experienced problems. 

Family members and friends are emotionally attached to the situation and may have vested interests, so may find themselves in a position where they have a conflict of interest.

If they have to take a ‘vote’ on an action and they are split, there is no easy way to resolve the dispute (unless the trust deed specifically allows for majority) as they must all agree in order to carry out an act.

When choosing a trustee, the obligations the trustees must fulfil a need to be considered. Many individuals become trustees and do not understand the legal requirements which they are now subject to.

There is numerous statutory requirements, the duty to comply with the terms of the trust, act in good faith and duty to provide beneficiaries with accounts and information about trust investments to name but a few.