While talking to a professional adviser he mentions the delay in receiving the death benefit, from the provider, due to having to get probate on his mother’s estate. The professional adviser asks him if he has heard of a probate trust? He hasn’t.
The professional adviser explains that the purpose of a probate trust is to speed up payment in the event of death and avoid the delays that can come with probate. Barney is very interested as he also holds an investment bond on his own life and would like to avoid any stress for his family when he dies. But as he is currently taking regular withdrawals, he thought that it couldn’t be put in trust.
He is interested to know that there are different types of trusts – some allow unlimited access to the person creating the trust (the settlor) while others limit the access or don’t allow any at all.
As a probate trust is only to ensure quick payment on death, the settlor has unlimited access so can benefit from the bond at any time. As most providers offer a bare or discretionary probate trust the professional adviser explains the difference.
Barney doesn’t like the idea that, even though the trustees get speedy payment under both types of trusts, with the bare version the trustees would still need to wait for probate as the estate beneficiaries become the beneficiaries of the trust. He does understand that the trustees could lend money to the estate beneficiaries but ultimately, he likes the idea of the discretionary probate trust.
The professional adviser explains that putting the bond into a discretionary trust is a chargeable lifetime transfer and Barney needs to consider any previous gifts he has made in the last seven years. Over a seven-year rolling period an individual can currently gift up to £325,000 (lifetime gifting allowance) without an immediate inheritance tax liability. Any excess over £325,000 is liable to an immediate 20% inheritance tax liability – this is called an entry or initial charge.
The bond is currently worth £250,000 and as Barney has made no previous gifts in the last seven years, he decides to use a discretionary probate trust. Barney, as settlor, will automatically be a trustee and he appoints his wife and son as additional trustees. The discretionary beneficiaries will include Barney, his wife and children.
