Q I have read that if I include a Discretionary Trust in my will this will have tax advantages. Could you please explain what this is?
A Including a Discretionary Trust in your Will can have advantages in terms of flexibility as well as enabling you to take advantage of the Nil Rate Band (i.e. the amount which you can leave Inheritance Tax-free to your family). The Trustees will hold property on trust to pay income and sometimes capital to the beneficiaries you nominate but at their discretion. No beneficiary has any absolute right to receive income or capital or to control the Trustees.
Married couples and civil partners can appoint their spouse/partner to be a Trustee as well as among the class of beneficiaries. The trust can be made up of a variety of different kinds of property although, in the light of the Inland Revenue's views on the subject, it would be prudent not to include the half share in your home of the first of you to die in the trust.
You can write a letter about your wishes for the trust's future to guide the Trustees how you would like them to apply the monies. However, the Trustees dare not obliged to follow your guidance and accordingly, you must select your trustees very carefully.
The relevant tax and general law in this area are complex and the Trustees may decide to take advice. Annual accounts and tax returns have to be completed and tax has to be paid on trust income (for example the interest received on the monies held in trust). Because of this the costs of running the trust can sometimes be expensive and you should consider very carefully whether your assets justify setting up the trust.
For all queries involving Discretionary Trusts, Wills or Estate Planning please contact Chris Potts on 0808 231 7043.
