Inheritance tax - trusts

[nikki]

My parents have been approached by a financial advisor who is recommending that they set up a trust to minimise IHT liability. At present they have a property worth in excess of £250,000, ownership of 2 fields and any investments they hold. This woman is advising that they can set-up this trust with £10 and then write an iou for £250,000 which would be transferred on death. She says her advice is free but the cost of setting up the trust would be in the region of £2000. As regards access to the £250,000 they have been told there would be no restrictions. Is this correct and is it as simple as this?

[Anthony Nixon]

It's much better for your parents to set up the arrangements through their wills. It gives more flexibility and avoids any risk of "reservation of benefit".

The loan does not have to be organised until after the death of one of your parents. Depending on circumstances, other arrangements may be equally effective to save inheritance tax.

The solicitors' fees for preparing tax-efficient wills will almost certainly be much less than the £2,000.

Anthony Nixon ATII
Associate Solicitor
Lester Aldridge Solicitors
Russell House
Oxford Road
BOURNEMOUTH BH8 8EX

Direct Line: + 44 (0)1202 786236
E-mail: anthony.nixon@LA-Law.com
Website: http://www.lesteraldridge.com

[Nigel Lord]

Nikki

On the basis of the information you have provided this appears to be a convoluted solution to a simple problem. It is certainly true that the use of a discretionary trust is a method of mitigating inheritance tax. I suspect that the solution being proposed involves a 'will trust' which would not come into existance until the death of either parent. This is standard estate planning. I would not expect the cost of establishing such an arrangement to be more than £1,000 in most circumstances.

I would recommend that your parents seek a second opinion and ascertain the level of fees prior to taking any action.

My firm specialises in Estate Planning. If you would like a free initial consultation, please do not hesitate to contact me.

Nigel Lord
Lord Associates
Caxton House
Old Station Road
Loughton
Essex IG10 4PE
020 8508 1642 or 07769 931852
lordassociates@ntlworld.com

[Huw Williams]

This looks like an arrangement I have come across before where the intention is to reduce the estate now to avoid tax on death.

However I think there is more to the arrangement than is suggested in the query as there is little point in the iou of £250,000 unless something is done with it now. For example your parents might be considering selling the property to the trust in exchange for the iou. This "freezes" the value on which IHT will be payable at £250,000, since any future increase in the property value will belong to the trust.

The fee of £2,000 sounds low as there are a number of potential complications if this is the sort of arrangement I have seen before. There may well be a simpler arrangement available.

Take a second opinion.


Huw Williams
enquiries@huwwilliams.co.uk

[clansearcher]

As a mere layman interested in this particular subject, may I ask what is the justification of what appears to be an exhorbitant cost for "setting up" a Trust. How can such a large sum of £1000.00 - £2000.00 (or even more !) be (reasonably) built up ?