- On April 3, 2018
Many of us dream about creating a bequest for someone near or dear to us so that either during our lifetime or when we’re gone we can pass on some money to help them. Alternatively, you may wish to create a bequest to a charity that’s close to your heart.
Often these bequests can be created simply by using a will but other times it might be necessary to set up a straight forward trust which you can make donations to during your lifetime and decide if a fixed few named individuals should benefit and how.
Alternatively, you could set up a trust on a discretionary basis whereby after your death the trustees (those you have chosen to carry out your wishes contained in the trust) have a choice as to who they give the funds to within the guidelines you, the settlor, have set.
Bequests often include school fees for children or grandchildren and similar acts of help. But people would be surprised by what they can put into a trust, such as actual property and shares you own, as well as simply making gifts of cash.
There are some tax consequences to bear in mind though. For instance, if you’re transferring a property into trust there may well be some Capital Gains Tax (CGT) to pay on the profit that’s realised before the property moves across.
But creating a trust is a very neat way of ensuring that there’s a guarantee of some funds cascading down the generations in a way that you would like to see happen.
However, it’s important the right type of trust is used and there are also protection issues that need to be examined.
For example, from time to time marriages break down and if you’ve made an outright gift to a child so that he or she can jointly buy property with their current husband or wife those assets become part of the marital mix.
This means that some of this money can potentially be lost to the family. But if you use a discretionary trust you can, to a certain extent, control that money and ensure that it stays within the family by using a trust that makes gifts or loans.
If people don’t have any money to give away and they’d like to leave something, taking out a simple life insurance policy and putting it into trust is creating a bequest.
There’s no money in it to start with, but when you die there’s going to be a windfall payment going into the trust that can be distributed amongst the beneficiaries.
So, using life insurance in conjunction with bequests or instead of actual cash bequests can be a way of effectively leaving something behind.
Even if you think you’re going to need all the money that you have during your lifetime, but you would like to leave something when you go to those that are nearest and dearest this is a good option.
If you’re married you could take out a simple form of policy that pays out into trust on the second death such that the money passes outside your estate, is free from inheritance tax and goes directly to those that you’ve nominated as beneficiaries.
It’s also worth noting that trusts can also be a useful of way of mitigating against Inheritance Tax. Gifts will normally only be completely free from Inheritance Tax if you survive for seven years after they’re made.
It is possible to take out insurance that provides for that period in between whereby a percentage of the Inheritance Tax is payable, known as a Gift Inter Vivos policy.
The tax treatment of trusts depends on the type of trust used so this needs to be thought through to ensure that it meets your needs before establishing a trust.
Remember, the value of your investments can go down as well as up. Past performance is not a reliable indicator of future outcomes.
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