In a trust, assets are held and managed by one person or people the trustee to benefit another person or people the beneficiary. The person providing the assets is called the settlor.
If the trustees change, the trust can still continue, but there must always be at least one trustee. There might be more than one beneficiary, like a whole family or defined group of people. They may benefit from:. You can find a solicitor to help you set up a trust. You should have at least two trustees but can choose up to four. There are many different types of trust that can be set up depending on how you want to control your assets.
Assets in a bare trust are held in the name of a trustee. This means the assets set aside by the settlor will always go directly to the beneficiary. Bare trusts are often used to pass assets on to young people — the trustees look after them until the beneficiary is old enough. The beneficiary can get income from the trust straight away but cannot control the assets that provide the income. The beneficiary has to pay income tax on the money they receive.
Discretionary trust A discretionary trust is the most flexible way for an individual to provide future support for beneficiaries. What is a discretionary trust? The powers of the trustees will depend on the trust document. What assets can the trust hold?
The trust can hold most assets including cash, investments, property or even vintage wine. Who can be a trustee? The settlor can also act as a trustee. Often a mixture of family members and professional trustees are appointed. Control of assets The Settlor the person who puts assets into trust would lose control of their assets at the point they are transferred to a trust; the assets would therefore fall under the control of the trustees who must manage them in accordance with the Trust Deed.
Administrative burden Setting up a Discretionary Trust can be complex, but maintaining a trust of this nature on an ongoing basis can bring about further administrative burden and cost.
Discretionary Trusts and tax When considering the use of a Discretionary Trust it's important to understand the tax implications that might affect you, such as; Inheritance Tax, Income Tax and Capital Gains Tax. Income tax Trustees are responsible for paying tax on income received in a Discretionary Trust. Capital Gains Tax Trustees may have to pay Capital Gains Tax if they sell or transfer assets on behalf of the beneficiary. Contact us today The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.
References these trustees typically charge a fee to act as a professional trustee. Where a Settlor has created more than one trust the standard income tax band and capital gains trust annual exemption are shared between the settlements.
Beware however the situation where after the trust commences, but before the 10 year anniversary, the settlor makes an addition to the trust. In such cases, the settlor's cumulative total in Step 2 below will be the higher of:.
This is just an overview as it is a complex area. Full details are available here. Even ignoring the above, the calculation of the periodic charge can be complex and involves the following steps -. This notional tax calculated is then deducted from the tax on the Aggregate Chargeable Transfer. That equals the tax on the hypothetical transfer. This is the tax paid by the trustees which is the actual rate x the value of the trust fund at the 10 year point.
Therefore, if the settlor had made no CLTs in the 7 years prior to setting up the trust, and if there was no capital distributed in the first 10 years, then the trustees will have a full NRB for the purposes of the periodic charge.
Two settlements are related if, and only if, the settlor is the same in each case and they commenced on the same day. Income which has remained undistributed income for more than 5 years at the date of the ten year anniversary is treated as if it were part of the capital for the purposes of the periodic charge this does not change the identity of the income when it is distributed to beneficiaries for income tax purposes. She had not made any previous gifts when she set the trust up nor has she made any since.
There have been no distributions from the trust fund so far and no related settlements. The periodic charge is calculated as follows —. The trustees will have to complete an IHT He has not made any distributions from the trust or added to it.
However he did make previous gifts when he was setting this one up which impacts on the calculation. Note that if any of the property had not been in trust for the full 10 years e. In that case relief would be calculated as follows. When assessing the charge applicable when funds are distributed to a beneficiary, we need to consider 2 scenarios. The first one is distributions out of the trust within the first 10 years and the second is distributions out of the trust after the first anniversary has passed.
When calculating the rate of tax, the value of the property subject to the exit charge is not relevant. Only the historic values those at the date of set-up or addition of the trust itself are considered. Note that the rate calculation is based on lifetime rates half death rate , even if the trust was set up under the will of the settlor. There will therefore be no exit charges in the first 10 years. Assume no other gifts, related settlements or additions to the trust and ignore exemptions.
Nigel then dies shortly after making his gift into the discretionary trust meaning that his PET fails and becomes chargeable.
0コメント