Discretionary Trust during lifetime

[Heather44]

My elder son is the beneficiary of a discretionary Will Trust set up by my late father's will using a third of his NRB. I have since had another son. There are no other grandchildren.

My mother would like to equalise the position between the 2 brothers. If she sets up a discretionary trust during her lifetime, as I understand it, if the assets transferred are under current NRB then there is no IHT to pay, however if my mother were to die within 7 years, then this gift into the Trust will use up that part of her NRB. Would HMRC use the Trust’s value at transfer or at her death?

Then the Trust must also pay an IHT tax if its value exceeds current NRB on its 10th anniversary. What is the rate of this tax?
Trusts also have a smaller tax-free allowance on income. Do they have an annual CGT allowance?

If my mother lives for 7 years after the set up of the trust, then will she have the full NRB to give a way again?

When is the trust start date – is it the date on the declaration of Trust or when the first assets are transferred in?

Are there any other issues to consider that I have missed?

Many thanks.

[maths]

My mother would like to equalise the position between the 2 brothers. If she sets up a discretionary trust during her lifetime, as I understand it, if the assets transferred are under current NRB then there is no IHT to pay, however if my mother were to die within 7 years, then this gift into the Trust will use up that part of her NRB. Would HMRC use the Trust’s value at transfer or at her death?

Correct. It is the value at the date of the gift, not death, which is relevant.

Then the Trust must also pay an IHT tax if its value exceeds current NRB on its 10th anniversary. What is the rate of this tax?
Trusts also have a smaller tax-free allowance on income. Do they have an annual CGT allowance?

Depends upon numbers but maximum rate 6%. CGT allowance £5,050 tax year 2010/11 ie 50% of that applicable to individuals; assumes only one trust created.

If my mother lives for 7 years after the set up of the trust, then will she have the full NRB to give a way again?

Yes.

When is the trust start date – is it the date on the declaration of Trust or when the first assets are transferred in?

If the trust is created by the transfer of property the trust is validly created on the date property is transferred not when the trust deed is executed.

[Heather44]

Thank you 'maths'. You have been very helpful in navigating this complex subject.