Plan for your children’s future now!

In these difficult economic times the last thing on your mind is giving away your money and assets. However, with share prices and property prices falling to such a low now could be the best time to consider making gifts of these assets to your children. Setting up a Trust is an ideal way to remove assets from your estate for the benefit of your children but retain control over how and when the children can become entitled to any assets.

Tax Savings

Transferring shares or a second home into a Discretionary Trust would usually give rise to a charge to Capital Gains Tax.  However, with shares and properties being at an all time low, many of us will have losses rather than gains.  If this is the case, then it is an ideal opportunity to transfer the assets out of your own name.  The assets transferred into the trust will no longer be taxed as your own for inheritance tax purposes if you survive for 7 years.  You should only put into the Trust assets up to the current inheritance tax threshold (£325,000).  Any more will give rise to an immediate charge to inheritance tax.  As we recover from the recession and the shares or property then start to rise in value, any increase in the value will be for the benefit of your children and will already be out of your own estate.

Once it’s gone – it’s gone!

So, you can transfer your assets, whether shares, property or cash to the Trustees and providing you survive for 7 years you have saved the inheritance tax.  However, you can never take back the assets from the trust – once they are in the trust it is too late!  If you benefit from the assets held in the trust in any way then this is classed as a ‘Gift with a Reservation of Benefit’ – A GROB.  In effect, it is a false gift.  You have given something away but still carried on using it and the Revenue will therefore tax you as if you had never given it away.  This is an important point to remember with regards to your main residence.  If you put your own house into a Trust for your children but continue to live there yourself without paying a market rent then the house will remain in your estate for inheritance tax purposes.

Control and Flexibility

You may not be able to benefit from the assets in the Trust but you can still control them.  You can be a Trustee of the Trust you set up along with at least one other person.  It is perfectly acceptable for you and your spouse to be the Trustees of a Trust which is for the benefit of your children.  You can then have control of the assets in the Trust.  The Trustees must follow the ‘rules’ of the Trust which are set out in the Trust Deed and in the Trustee Act 2000.

Apart from saving the inheritance tax, there are other benefits of a Trust.  As a Trustee you have total flexibility over when and if the children have any money or assets from the trust.  A Discretionary Trust allows the Trustees to decide as the years go by whether they want to pay any money to any particular beneficiary.  You do not have to decide at the outset exactly who will get what and when – you can wait and see.  Most parents will agree that this is huge advantage.  Matrimonial problems, difficult relationships and drug issues are all potential reasons why you might decide not to give any money to your children at that time.

A Discretionary Trust:

• Tax saving benefits
• A nest egg for your children
• Flexibility and control for you

If you would like to discuss the taxation or benefits of Trusts in more detail please do not hesitate to contact me.