The Steele Rose IHT Savings Trust

What is the Inheritance Tax Savings Trust (IHT Savings Trust)?

Our IHT Savings Trust is designed to allow individuals to remove taxable assets (normally cash) from their estate to reduce the inheritance tax liability. These funds are gifted to the trust (either as a single payment or several single payments) as a lifetime transfer. The Settlor can manage the funds if they are not used to benefit the Settlor.

Once in trust, if the funds are required by the Settlor, they may be paid back to the Settlor however this would also place the funds back within the estate for inheritance tax purposes.

It is also possible that funds placed into trust be excluded from local authority means testing provided that they cannot prove that a contributing factor for making the gift into trust was to save on care fees (or avoid paying them altogether).

Funds must remain in trust for 7 years to fall outside of the Settlor’s estate for inheritance tax purposes.

Requirements of the trust

The IHT Savings Trust only requires the formality of setting up a lifetime trust and the funds (or assets) to be placed within the trust. Sums over £325,000 will be placed in multiple trusts.

How does the trust work?

A trust deed would be drafted to set out the powers and limitations of the trust required. The Trustees would then accept the gift into trust from the Settlor and invest the funds as per the Settlors wishes. On death of the Settlor (or at the end of a set term) the trust funds will pass to the beneficiaries as per the wishes of the Settlor (thus passing outside of the estate of the deceased).

Limitations of the IHT Savings Trust

The trust requires the Settlor to have no interest in the gift after it has been made. If at a later date the funds are needed, they can be paid back to the Settlor however this would discount any potential inheritance tax savings.

Should you need assistance with care home fees in the future it is possible that the local authorities will scrutinise the gift of your home into trust. If they can prove that a contributing factor for making the gift into trust was to save on care fees (or avoid paying them altogether) then they may be able to recover the value of the trust property.

If the trust continues for ten years the property (or investments) would be valued and added to any capital which had been paid out of the trust within the ten year period. If that value is more than the nil-rate band there would be an inheritance charge of 6% of the trust fund (this potential charge occurs on every tenth anniversary of the trust).

We provide various services to help with the creation of trusts as well as general estate administration. For more information or to speak to our Probate specialist please call 01722 410009.

By accepting free advice you are under no obligation to use our services.

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