Archive for the ‘trust funds’ Category

The Business Trust – A Guide

Posted by Janay Harris

The Business Trust arrangement allows full advantage of 100% Business Property Relief (BPR) to be taken. It can also be used where assets qualify for 100% Agricultural Property Relief (APR)

BPR and APR are extremely valuable relief’s for Inheritance Tax (IHT) purposes in that most cases the shares or interest in a business will qualify for 100% relief from IHT without any upper limit. This means that businesses can be left to future generations without any IHT liability arising.

Unfortunately in many cases these generous gifts can be wasted since on first death the shares or interest in the business is frequently left to a surviving spouse. Whilst this may not cause a problem where the spouse intends to retain an interest, where the intention is to sell, an IHT liability can arise on the death of the spouse. The Trust is therefore particularly useful if a there is a business protection arrangement in place whereby the remaining shareholders or partners are likely to buy the shares or interest.

Take the following example:

Andy, Bob & Charlie are all equal shareholders in an unquoted company worth £750,000. To provide a smooth buyout for the company’s shares they have each taken out life assurance policies for £250,000 on their own lives and placed each policy under a Flexible Business Trust for their co-shareholders.

They have then entered into Cross Option Agreements which state that the surviving shareholders have the option to purchase the shares in the business from the personal representatives if one of the shareholders dies. Similarly the personal representatives have the option to sell the shares to the other shareholders. As the business is a trading company and the shares have been held for at least two years, it is anticipated that 100% BPR will apply. All the shareholders are married with children and their Wills currently leave all their assets to their surviving spouses.

1. Andy dies first and the proceeds from his policy pay out to Bob & Charlie.

2. Bob & Charlie use these proceeds to buy the shares from Andy’s estate.

3. Andy’s personal representatives then pass the cash received to his widow, Denise.

4. No IHT applies due to the spousal exemption.

5. However, when Denise dies, the proceeds from the sale of the shares are part of her estate.

6. IHT liability on second death therefore is £250,000 x 40% i.e. £100,000, assuming the nil rate band has been used by other assets.

How can the Business Trust help?

Andy could have established a Business Trust in his Will and nominated that the shares in the business should be held in trust for his wife/children. The IHT liability on second death will be as follows;

1. Andy dies first, the shares he owns pass into a Business Trust for his beneficiaries and the proceeds from his policy pay out to Bob & Charlie as before.

2. Bob & Charlie use the proceeds to buy the shares from Andy’s beneficiaries Business Trust .

3. The personal representatives then pass the cash received to the trustees of the Business Trust to hold on Trust for the children of the named beneficiaries.

4. No IHT applies on the transfer to the Trust due to the availability of 100% BPR at the time of Andy’s death.

5. The Trustees can use their discretion to pay or lend funds to Denise, Andy’s widow.

6. Since the value of the Trust fund will not be treated as part of the Denise’s estate, then on her death, the IHT liability on the proceeds from the sale of the shares is nil. Any loans made to her from the Trust will reduce the value of her own estate.

What is the IHT position on Andy’s death?

Assuming that under the Business Trust Andy’s children are entitled to income from the Trust fund (and therefore have the interest in possession) on Andy’s death, the transfer will be treated as having been made from Andy to his children. Although this potentially incurs IHT, no charge arises where full 100% Business Property Relief is available.

How are Trust assets used for the benefit of Andy’s widow?

Subsequently, as and when Denise requires cash from the Trust, the Trustees, and Denise can be a Trustee, can make irrevocable appointments of capital to herself and pay the necessary cash.

Alternatively, it may be more IHT efficient for the Trustees to make loans to Denise. These can be interest free if interest is charged on the loan it will be Trust income payable to Andy’s children and liable to income tax at personal rates.

For more information or to discuss your needs, please call John Ireland now

on 0208 547 2583 or email,

For more information, please click on this link 

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The LEGACY Fast Facts Guide About Trusts

Posted by Janay Harris

Trusts can;

Allow your beneficiaries to receive your gift without delay.

Allow you to choose you want to benefit

Allow you to change who should benefit

But They Don’t;

Mean you give up control of your assets

Have to be expensive or difficult to set up with help from your adviser

Could you use a Trust?

A Trust is a way of choosing who will receive the benefit of certain assets, without giving your beneficiaries full and immediate control over them. A Trust can also be created by your Will.

Who Is Involved In Setting Up a Trust?

You, as the person creating the Trust, are known as the Settlor or Donor. The people who also manage the Trust are known as the Trustees.

In most cases, it’s necessary to have at least two individual Trustees in place all the time and you must therefore choose additional Trustees to administer the Trust.

These people may need to deal with the Trust if you die so you need to choose them carefully. The beneficiaries are the people who you want to benefit from the Trust. If the Trustees break the terms of the Trust, the beneficiaries may take legal action against them. The beneficiaries are identified in the Trust document.

What Are The Benefits?

Setting up a Trust can be easier than you think and can provide you and your family with real financial benefits.

Can I Change My Beneficiaries?

The Finance Act of 2006 introduced significant changes affecting the way Trusts are treated for Inheritance Tax (IHT) purposes. Most of the Trusts we offer are Discretionary Trusts. This means the Trustees have the power to choose which of the discretionary beneficiaries to pay the Trust fund or gift to and in what shares.

With a Discretionary Trust, the Trustees can appoint benefits to anyone included as a discretionary beneficiary. The Trustees have a Power of Appointment which means they can appoint funds to anyone who falls within the definition of discretionary beneficiaries within the Trust.

The donor can also prepare a Letter of Wishes to guide the Trustees as to which discretionary beneficiaries they’d like to receive the benefits.

The Letter of Wishes isn’t binding on the Trustees, so it’s important that the Trustees are chosen carefully.

Who Do I Appoint As Additional Trustee(s)?

As the word suggests, a Trustee should be someone you trust. For example, your partner, spouse, civil partner, another family member, a close friend. Trustees must be over 18 (16 in Scotland), mentally able and mustn’t be bankrupt. Trustees should sign the Trust form to acknowledgement their appointment. In accepting their appointment Trustees must carry out certain obligations and duties.

Inheritance Tax is charged at 40% on your estate on anything above the Nil Rate Band.

£5.1 billion is the amount of Inheritance Tax receipts in the tax year 2016 /17, an increase on £4.6 billion in 15/16.

Trustees Responsibilities

Trustees must keep records, including Trust accounts, as they may need to prove they are managing any Trust funds properly. For example, records must be kept of any changes made to the investments in the Trust fund and any money paid or loaned to a beneficiary. We also recommend that proof is kept for any professional advice on investments etc.

What Other Powers Do Trustees Have?

The law gives Trustees some powers. These include;

· The power to use income from the Trust for the education of maintenance of a beneficiary who is under the age of 18

· The power to give capital give capital to a beneficiary before they become entitled to demand it

· The power to sell Trust property

· The power to give receipts

· The power to insure Trust property

Other more specific powers may be set out in the Trust form. The range of powers in each Trust can vary depending on the aims of the Trust. Trustees should make themselves familiar with the powers they have.

The standard range gives the following powers;

· The power to exercise any option within any plan for life insurance

· The power to pay benefits to the parent or Guardian to any beneficiary who is not yet 18

· The power to lend money to any of the beneficiaries

· The power to borrow using the Trust fund as security

Can I Change My Trustees?

The power of appointing or removing Trustees belongs to the Donor(s) while alive. If the donor wishes to remove a Trustee and that person is unwilling to sign the form, then the Donor can remove that person by sending a notice of removal in writing to the Trustees at the last known or usual address.

The Trustees being removed must then sign the necessary documentation to complete their removal. If the Trustee isn’t available to sign the documentation the donor will need their own legal advice in order to remove them. If a Trustees retires or is replaced, a new Trustee may need to be appointed.

267,549 estate were issued a Grant of Representation in 2013/14, which accounts for about 47% of all deaths in that year. Source: HM Revenue & Customs 2016

Getting The Money When It’s Needed Most

If an asset isn’t under Trust, your personal representatives (the people you have asked to deal with your estate after you die) will need to get the appropriate ‘Grant of Representation’ before they can deal with the asset. This process is known as ‘Probate’ in England, Wales and Northern Ireland or ‘Confirmation’ in Scotland.

Probate is the legal process of confirming who can deal with the estate of a person who has died before the assets of the estate can be distributed according to the terms of their Will. If someone dies without leaving a Will, they’re said to have died ‘Intestate’. Their estate will be divided according to the rules known as the ‘Laws of Intestacy’.

This can be a long process and can take several months. In the meantime, your family could be suffering financial hardship following your death.

By placing insurance policies in Trust, the need for probate will be avoided as long as there’s one surviving Trustee when you die. This is because the Trustees are the legal owners of the plan, and can deal with the Trust property immediately, making sure your chosen beneficiaries don’t suffer financially after you die.

One of the most common reasons for taking out a protection plan is to provide for your family after you die. By writing the plan in Trust, you can make sure that the proceeds of the plan are paid to them without delay.

Do I Have To Take Out A New Plan To Put It In Trust Or Can I Use An Existing One?

The majority of new protection plans can be written in Trust but changes to existing policies are not always possible, depending on your insurer. Business protection and Relevant Life Plans must be written in Trust from the start.

However, you may want to review your plans to make sure they’re still right for you. We can carry out a review of your plans and recommend appropriate Trusts for them.

Trusts as you can see are very important.

For more information or to discuss your needs, please call John Ireland now

on 0208 547 2583 or email,

For more information, please click on this link 

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