Discretionary Will Trust question

[IDH]

I am wondering is it possible to set up more than one discretionary will trust?

For example a client of mine (I am an IFA) has 4 grandchildren of differing ages. She wants to gift the full nil rate band into trust for them on her death. She is not comfortable with the age of entitlement being 18, she prefers 25. The grandchildren are currently aged 20, 18, 11 and 9.

I assume the trustees are liable for the IHT charges - but would take it from the trust assets.

Are exit charges based on: current nil rate band less previous exits in last seven years (as are lifetime gifts)? My concern is the youngest grandchild might end with less due to the trust then paying all the exit IHT.

Would it help to set up 4 independent will trusts?

Would it be better to set up 4 trusts now before her death (she has terminal cancer, so this is possible)?

Pre budget 2006 I would have suggested doing a lifetime power of appointment trust rather than a will trust. So much less admin and of course no ongoing iht considerations. Ah well..

Ian Hackett

[colinefbarrett]

Hi Ian

If it is a discretionary will trust then none of the grandchildren has an entitlement to any of the funds in the trust. How and when the funds are distributed is entirely at the discretion of the trustees (presumably guided by an expression of wishes drafted by your client before her death).

best regards
Colin

[IDH]

Hi Colin,

Thanks for your reply. Of course - a case of not seeing the wood for the trees there.

I have been looking at the "18-25 trust" rules and have spoken to the Capital Taxes office. But they were still vague about the effect of multiple trusts - i.e. how the settlement rate might take into account multiple settlelments and any related exit charges.

The revenue chap suggested I write to them with some examples so they can clarify the treatment. Looks like I will have to do this.

All the best,
Ian

[DavidHC]

Multiple settlements appear to be a good idea. I have run this past several trust "gurus" working for major life companies. At the ten year point and on any exit, each trust has its own nil rate band

[konya]

David, Just to clarify, is that right that you have been advised that a settlor can set up any number of discretionary trusts, each with a full IHT nil rate band ?