Lifetime discretionary trusts- Case Study
The People
BH owned a property and a separate farm valued at about £5 million. She had limited cash assets but a relatively large income from the farm and from pensions.
The Problem
On BH’s death, there would be a significant charge to Inheritance Tax. However, there was limited cash available to pay the tax and so BH’s executors would need to sell the house and/or the farm. BH wanted to avoid this if possible to keep them both in the family.
The Solution
BH set up a lifetime discretionary trust. She arranged a quarterly payment of her excess income into that trust. As the gifts to the trust were gifts out of income they were immediately exempt from Inheritance Tax and so there would be no IHT even if she died within 7 years. On her death, the trust could lend the funds held to BH’s estate to pay the IHT without having to sell the house or the farm and without the funds held in trust being subject to IHT themselves.
Who to contact
Paul Tobias
Senior Partner, Head of Trusts & Investments
Email
Request a callback