Is it time to review your Discretionary Trust?

With changes to the law coming in 2017 one of the most popular and efficient methods of ensuring that your children are not disinherited, in the event that your spouse remarries after your death, could be about to become tax-inefficient.

Why could a Discretionary Trust cost me more tax?

The Government have recently changed the rules on inheritance tax. As many people know, this is a very important policy area for the Conservative Party.By introducing something called the “family home allowance” couples can now benefit from increased tax allowances if their property is being inherited by direct descendants. A direct descendant is classed as the following:

Children

Stepchildren

Adopted or foster children

Grandchildren

A Discretionary Trust passes the property into the trust so it cannot benefit from the “family home allowance”.

How much could I lose from a Discretionary Trust?

By 2020 the “family home allowance” will be worth an additional £175,000 per person. This will be added to the existing Nil Rate Band tax allowance of £325,000 per person.

So each couple’s allowance will be £500,000 each – or £1m per household.

With inheritance tax currently at 40% of everything over the Nil Rate Band, this means that you could pay an additional £140,000 in tax if you still have a Discretionary Trust after 2020.

How do I ensure my children receive the same protection as a Discretionary Trust?

There are still many options available to you if you are worried about the possibility of your partner remarrying after your death.

As all circumstances are different we strongly recommend that you speak to a qualified Wills & Probate practitioner. They will be able to study your individual situation and recommend the most efficient and robust way forward.

There are a number of Trusts available through your Will that allow your family to benefit from the Family Home Allowance whilst still protecting your children from being disinherited.

These include:

  • Interest in possession (IIP) trusts

  • Disabled persons trust and IIP

  • Bereaved minor’s trust

  • Age 18 to 25 trusts

What should I do now to avoid missing out on the Family Home Allowance?

The best thing to do now is to book a review of your Will.

Hillman Legal offer a free no obligation review of your Will that can be conducted in our London offices or in the comfort of your own home.

Alternatively you can seek guidance via Citizens Advice.To speak to a Will specialist today email info@hillmanlegal.co.uk or call Hillman Legal Partnerships for free on 0800 29 88 66 1