Is a Trust the right option?

[earlep]

My father wishes to gift £150,000 to each of his two sons (preferably as a single investment, but that is not essential). He wishes to get the gift amount plus its growth out of his estate after the seven year IHT timescale, but he also wishes to be able to draw an income from it should he desire to do so.

His need for income is not immediate, and may never actually happen, but whilst he is alive he wants the comfort of being able to have access to the £300,000 should he desire.

Please could anyone let me know if there is a trust that can accommodate this scenario, and what the tax implications would be over the medium to long term (up to 20 years) both whilst the investment is in the trust and when it is encashed by the trustees for the beneficiaries.

He has considered using a Discounted Gift Trust, but please could you let me know if that would be allowable if he did not want income from the very outset, and wanted a variable income as and when he needed it.

His other option would be to just gift a cash amount to the two children, on the assumption he will live seven years and no income is required, would this be a more cost efficient way of gifting the money, ie tax.

Is a trust the right option, from reading other forums it may not be.

Your advice would be greatly appreciated.

[tax_schmax]

There are arrangements that do exactly what your father desires. A discounted gift scheme would appear to be unsuitable as his need for income is uncertain. Your father may benefit more from a flexible reversionary interest trust or an investment that qualifies for Business Property Relief. The latter is particularly suitable if he feels he may indeed need the money.

Your father does not want to gift the money to his sons if he wishes to have access to it, although this is technically possible. Your father should consider the circumstances under which he might need extra income and ensure this is made safe. His financial security should come before any gifts. It is only tax he would be saving and this is far less of an inconvenience than self inflicted poverty!

If your father can afford to give the money to his sons outright, this should be considered. Often the estates of children are large in their own right and consideration should be given to the consequences of these planned gifts on their own financial planning. If the children's estates are not an issue, an outright gift may be preferable. Specialist advice is required to consider the above and the effect or consequences of the various options.