How long will your savings last in the event of sickness or accident? It’s your responsibility to maintain payments! Are your affairs in order? You should be mindful in the event of your death, all liabilities would need to be cleared before an estate can be released from probate and the estate settled. Therefore, any mortgages would need to be repaid possibly through a life insurance policy or pension plan. And to ensure assets are distributed to the right family or business partner without delay.

Trusts are a useful tool in estate planning and ensure that the right people get the right money at the right time. It is important, however, to use the correct trust to meet the financial needs on death.

A bare (absolute) trust ensures that a named individual will have the legal right to the trust fund from age 18.

A discretionary trust provides a far greater degree of flexibility and enables the trustees to apportion the trust fund to beneficiaries at their discretion. This flexibility, however, involves a higher degree of administration, with the potential risk that the trustees will be taxed on income or capital gains made within the trust.

Inheritance tax may be due on the assets held within a trust when:

They are transferred out of a trust (exit charges);

A ten-year anniversary occurs,

The only exceptions to this rule are when the asset is;

in a bare trust; in an ‘interest-in-possession’ trust and was put there before 22 March 2006;

subject to a ‘transitional serial interest’ made between 22 March 2006 and 5 October 2008,

placed in an interest-in-possession trust by a will or the rules of intestacy, set aside for a disabled person, set aside for a bereaved minor.

Residence Nil Rate Band and IHT planning

The residence Nil rate band is an additional (£175,000 from April 2020) inheritance allowance for direct descendants, if certain qualifying conditions are met. For married couples/ civil partners mortgages and other liabilities need to be deducted before calculating the available allowance and the benefit is deducted from the value of the estate on death before deducting the general NRB.

In the event of either partners death – all liabilities like mortgages have to be repaid before the estate is released from probate and the letters of administration have be sent.

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