Settlor interest trust

[umeshg1]

If a settlor transfers property in trust and if the beneficiaries are his spouse and his two minor children , the trust is a 'settlor interest trust' and if the settlor dies the property in the trust will form part of their estate because it is a 'settlor interest trust' and because there is a gift with reservation of benefit. The settlor is separated from his spouse and does not live in this property

Question is. lets say a few years afterwards the settlor gets divorced and the children are no longer minors. Is the trust still considered a ' settlor interest trust' and if not, the trust will not form part of the Estate of the settlor

Thank you

[AGoodman]

On the day the trust ceases to be settlor interested, the settlor will be deemed to have made a potentially exempt transfer. The value will leave his estate if he survives that day for seven years.

(the effect ceases immediately for income tax)

[umeshg1]

Thank you

[umeshg1]

Thank you again

Just to clarify . In this scenario below when will the trust cease to a Settlor Interest Trust

Wife- Divorced Year 2
Child 1 no longer a minor Year 5
Child 2 no longer a minor Year 7

Will it cease to be Settlor Interest Trust in year 7 when the last beneficiary is not a minor

Thank you

[maths]

Not wishing to be overly pedantic but the term "settlor interested trust" is not used in connection with IHT, only CGT and income tax.

Where a settlor settles property on a discretionary trust of which he is not a beneficiary then the gift into trust will not constitute a gift with reservation; hence, on there settlor's death no part of the trust property will be included in the settlor's estate for IHT. This applies whether or not spouse and/or children are possible beneficiaries.

Settlor interested trust for income tax arises if settlor or spouse may benefit.

Settlor interested trust for CGT purposes arises if settlor, spouse or dependent children (unmarried child under age 18) may benefit.

Settlor interested status ceases for income tax when both settlor and spouse cease as beneficiaries (or settlor dies); similarly fore CGT.

Note that the term "spouse" does not apply if the spouses are separated and the separation is likely to be permanent.