Asset Protection Lifetime Trusts
Instead of personally owning your assets, such as your house and your money, there are many advantages to transferring these into an Asset Protection Trust during your lifetime.
Whilst this is an extremely valuable way to prevent those hard-earned assets being used to fund long term residential care, this trust can also be useful in reducing or even eliminating thousands of pounds in the cost of administering your estate when you die, so your beneficiaries inherit more than they would have done under normal circumstances.
The trust also ensures your beneficiaries inherit immediately on your death rather than waiting for your estate to be administered, which can take many months and in some cases even years.
Spousal Bypass Lifetime Trusts
One way an inheritance tax liability can occur is when a person dies and a payment from a life assurance policy is triggered.
It's common for the payout to be made into the estate of the deceased, which when added onto that person's own assets, can sometimes lead to an inheritance tax liability.
To prevent this life assurance policies are often written in trust to the surviving partner, but that merely delays any inheritance tax liability for when they too die. We can arrange for the proceeds of your life assurance policy to be paid into a spousal bypass trust when you die, which you set up during your lifetime.
The trust itself is a discretionary trust (see previous section). You would normally specify the beneficiaries of this trust as being your surviving spouse or partner, your children and any grandchildren. However, this has special provisions built into it - for example, rather than your trustees giving trust funds directly to a beneficiary they can loan them. This means that when your surviving spouse or partner subsequently dies, although they have had free use of the trust fund the amount they borrowed is seen as a debt on their estate, which reduces the value of their estate when calculating their inheritance tax liability.
Once again, more inheritance for the other beneficiaries to the trust ...less inheritance tax ...greater tax planning flexibility!
However, if you are particularly wealthy, by leaving everything to your children you could inadvertently be passing on an inheritance tax liability when they subsequently die. The inheritance you leave to them will be added onto their own estates, which could make them sufficiently wealthy that they then suffer an inheritance tax liability.
We can help solve this problem by setting up one or more pilot trusts to which you can leave your estate. Again these are discretionary trusts with provisions to allow your children to borrow from the trust rather than giving them trust funds, so that again when they die their estate value is reduced when adding up their inheritance tax exposure.
So, whilst pilot trusts won't help your inheritance tax liability they will undoubtedly help reduce the liability of your children.... more inheritance for your grandchildren!