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Where Taxpayers and Advisers Meet

non dom and discretionary trust wills

aiyu
Posts:13
Joined:Thu Mar 09, 2017 9:12 pm
non dom and discretionary trust wills

Postby aiyu » Tue Jun 26, 2018 3:52 pm

Advice please. I'm retired, a UK resident but non-dom, and may be deemed domiciled in a couple of years time. I have been advised that an onshore 2 years discretionary trust wills with a letter of wishes is the most suitable way to reduce my IHT, so that when I die, everything would go into the trust. I would like my UK asset (a house) and my offshore asset to benefit my spouse, children and grandchildren. I do not wish to have an offshore trust due to the complication and high running costs, it is not cost effective for me. Can anyone point out to me what is the drawback of the 2 years discretionary trust wills in my situation? Should I add a family member as a co-trustees? thank you.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: non dom and discretionary trust wills

Postby maths » Wed Jun 27, 2018 12:38 pm

1. What is the domicile status of your wife?

2. How many years have you and your wife resided in the UK?

3. What is the value of you and your wife's estate, UK and offshore?

4. What is the domicile status of your children?

aiyu
Posts:13
Joined:Thu Mar 09, 2017 9:12 pm

Re: non dom and discretionary trust wills

Postby aiyu » Wed Jun 27, 2018 1:45 pm


Maths, I quoted yr questions with answers.
1. What is the domicile status of your wife? The domicile status of my husband is UK (retired).

2. How many years have you and your wife resided in the UK? We both returned end of 2015 after being away 8 years and prior to that I resided here on and off from 1996 - 2007 whilst maintaining overseas home.

3. What is the value of you and your wife's estate, UK and offshore? UK house is mine approx 1M, offshore approx similar.

4. What is the domicile status of your children? my children are UK domiciled.
thanks

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: non dom and discretionary trust wills

Postby maths » Wed Jun 27, 2018 8:32 pm

Sincere apologies for assuming you were male. Bad habit!

Assume kids all over age 18.

As a non-dom it's usual to try and retain as much property as possible remains excluded property for IHT (ie falls outside any charge). However, this may have limited advantage in practice as husband and kids all UK doms.

May make sense to leave UK home to spouse by will; no IHT as inter-spouse.

Gift some offshore assets to husband in lifetime or by will (no IHT).

Gift some offshore assets to kids in lifetime before becoming deemed dom or settle them on discretionary trust in lifetime for kids excluding spouse from benefit; up to value 325K.
Trust preferable offshore but could be UK trust.

No IHT on death but 325K nil rate band fully utilised.

On death of husband he has his own nil rate band (325k) plus two lots of residence nil rate band (2 x 175k possible) if he leaves UK home to kids in his will.

Your suggestion requires your estate be left by will on discretionary trust and within 2 years the trust assets distributed by trustees in line with your expressed wishes. Idea is that you don't necessarily have to decide matters now and the trustees can take into account matters as they stand following your death.

aiyu
Posts:13
Joined:Thu Mar 09, 2017 9:12 pm

Re: non dom and discretionary trust wills

Postby aiyu » Thu Jun 28, 2018 2:29 pm

Hi Maths,

Thank you for your advice. Very helpful indeed. Abandoned offshore trust 8 years ago due to it's complexity, diminishing benefits and the high running cost. Currently have gone done the trust wills route, as I may be deemed domiciled in 3 years time, but I am wondering what the drawbacks are with trust wills, whether I need to appoint one of my children (all above 30) as a co-trustee, rather than leaving it to an unknown person appointed by the company to be the trustee. Many thanks, really appreciate it.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: non dom and discretionary trust wills

Postby maths » Thu Jun 28, 2018 8:25 pm

The general idea of a 2 year discretionary will trust is that it enables the circumstances of various beneficiaries to be taken into account post death. It allows the trustees to distribute the trust assets/income as seems appropriate. By making such distributions/appointments within 2 years of death the appointments made by the trustees can be treated for IHT and CGT purposes as if they appointments had been made by the deceased in his/her will.

Hence why a letter of wishes are helpful to help the trustees do what is in line with what the deceased would have done.

If appointments are not made then the trust continues beyond the 2 years and IHT exit charges and 10 year charges may arise in the future as would be the case here as your total assets when settled will significantly exceed your 325K nil rate band.

Certainly your trustees need to be persons who you trust as should your executors.

If you proceed with the will trust idea then if at the time of your death you have become deemed dom for IHT then excluded property status will be lost.

I think you need to decide what planning you can undertake before death and pre becoming deemed dom; for example, selling overseas assets pregnant with any gains or settling them on lifetime trust.

aiyu
Posts:13
Joined:Thu Mar 09, 2017 9:12 pm

Re: non dom and discretionary trust wills

Postby aiyu » Fri Jun 29, 2018 12:16 pm

Dear Maths,

Many thanks for taking time to answer my question, very helpful indeed in shaping up my plan. I am preparing to sell my overseas asset prior to the status deemed domiciled. Unfortunately I do not know who the trustee is going to be, I was told it would be one of the directors, as the company who advise me is a medium accounting/tax/legal co that has many directors that act as trustees, and they do not know which directors are around at the time of my death. What I can do is to keep in touch from time to time and find out which directors are around to oversee such role.

With thanks and best wishes

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: non dom and discretionary trust wills

Postby maths » Fri Jun 29, 2018 3:47 pm

There is no need to agree to an appointment of a trustee from the firm who advised you although this approach is not surprisingly common. Money is to be made by firms who act as executors/trustees.

You could simply appoint friends/family as trustees who would take all decisions and they could ask a solicitor for advice as and when needed.

aiyu
Posts:13
Joined:Thu Mar 09, 2017 9:12 pm

Re: non dom and discretionary trust wills

Postby aiyu » Fri Jun 29, 2018 4:38 pm

Maths,

Thank you, it absolutely makes sense appointing family/friends to oversee that my wishes are carried out. I presume the appointed person can act as co-executors as well as the co-trustees.
Have a good weekend.
With best wishes


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