Passing on your wealth in the right way is key for its preservation
The introduction of the Residence Nil-Rate Band (RNRB) has made it easier for some individuals to pass on the family home. The rise in property prices throughout the UK means that even those with modest assets may exceed the £325,000 Nil-Rate Band (NRB) for Inheritance Tax.
‘Ring-fencing’ assets to protect family wealth for future generations
Trusts are used to protect family wealth for future generations, reducing the inter-generational flow of Inheritance Tax and ensuring bloodline protection for your estate from outside claims. The way in which assets held within Trusts are treated for Inheritance Tax purposes depends on whether the choice of beneficiaries is fixed or discretionary.
Bare Trusts are also known as ‘Absolute’ or ‘Fixed Interest Trusts’, and there can be subtle differences. The settlor – the person creating the Trust – makes a gift into the Trust which is held for the benefit of a specified beneficiary. If the Trust is for more than one beneficiary, each person’s share of the Trust fund must be specified.
With a Discretionary Trust, the settlor makes a gift into Trust, and the trustees hold the Trust fund for a wide class of potential beneficiaries. This is known as ‘settled’ or ‘relevant’ property. For lump sum investments, the initial gift is a chargeable lifetime transfer for Inheritance Tax purposes.
Discretion over which of the default and potential beneficiaries actually benefit
FlexibleTrusts are similar to a fully Discretionary Trust, except that alongside a wide class of potential beneficiaries, there must be at least one named default beneficiary. Flexible Trusts with default beneficiaries set up in the settlor’s lifetime from 22 March 2006 onwards are treated in exactly the same way as Discretionary Trusts for Inheritance Tax purposes.
These Trusts are often used for family protection policies with critical illness or terminal illness benefits in addition to life cover. Split Trusts can be Bare Trusts, Discretionary Trusts, or Flexible Trusts with default beneficiaries. When using this type of Trust, the settlor/life assured carves out the right to receive any critical illness or terminal illness benefit from the outset, so there aren’t any gift with reservation issues.
Taking control of decisions even in the event you can’t make them yourself
A Lasting Power of Attorney (LPA) enables individuals to take control of decisions that affect them, even in the event that they can’t make those decisions for themselves. Without them, loved ones could be forced to endure a costly and lengthy process to obtain authority to act for an individual who has lost mental capacity.
One & All Financial Services is a trading name of Oryx FS Ltd, which is authorised and regulated by the Financial Conduct Authority – FS No. 672406 Registered Office: 2 Mount Sion, Royal Tunbridge Wells, Kent, TN1 1UE, Company Registration Number 09203959
Your home may be repossessed if you do not keep up repayments on your mortgage.