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Trusts are useful mechanisms not just for controlling the way in which your estate is used after you die but also for reducing your inheritance tax liability. However, they can be expensive to administer and are not always the best approach. We will guide you through the options so you can make the best-informed decision for your needs. There are several options open to you:

  • Accumulation and maintenance trusts

    The Finance Act 2006 changed the inheritance tax treatment of trusts and it is no longer possible to make accumulation and maintenance trusts. If you have included one in your will it should be reviewed.

  • Bare trusts[ TOP ]

    Bare trusts are likely to become more common as it is no longer possible to make accumulation and maintenance trusts. Under a bare trust, a child under 18 years old cannot give a valid receipt to trustees for capital. Therefore, even though capital may belong to a child, the trustees may hold on to it until that child reaches the age of 18. In doing so, they are holding the money as bare trustees.

  • Discretionary trusts[ TOP ]

    Under a discretionary trust the trustees have discretion over how income and capital are distributed. No one beneficiary can demand either income or capital. Any payment is always at the trustees' discretion.

  • Life interest trusts[ TOP ]

    In this type of trust a beneficiary is entitled to the immediate enjoyment of a right in or over trust property. A beneficiary (in this case called a life tenant) may, for example, have the right to live in a property or to receive the income from it during his or her lifetime. Once this right ends, usually on the death of the life tenant, the capital passes to another beneficiary or beneficiaries.

  • Nil rate band discretionary trusts[ TOP ]

    Used in husband and wife wills, this is a clause in a will which enables a legacy to be put into a trust without incurring inheritance tax. The clause must refer to the nil rate band which exists at the time of the person's death. As with a discretionary trust, the trustees have discretion over how and and when the legacy is distributed.

As with all tax planning, it is essential to keep trusts and wills under review as inheritance tax laws may change. We can advise you on what would be best for you, depending on the size of your estate, your wishes for your beneficiaries and your own needs now and in the future.