Will Trust Planning
A discretionary trust is a very flexible type of trust. The trustees of the trust own the trust property on behalf of the beneficiaries. Future beneficiaries, that have not yet been born, can still benefit from trust arrangements.
The trustees can pay out income or capital to any one or more of the beneficiaries entirely at their own discretion. No beneficiary has a right to demand income from a discretionary trust.
Why include one in your Will?
Incorporating a discretionary trust into your will can save a substantial amount of inheritance tax.
On death, an individual’s estate, including any gifts that they have made in the last seven years, is generally free of inheritance tax. This slice, referred to as the ‘nil rate band’ currently stands at £325.000. Inheritance tax is charged at 40% on the excess that exceeds the nil rate band.
The nil rate band is often wasted by married couples or registered civil partners on the death of the first spouse or civil partner.
Many couples choose to leave all of their estate to the surviving spouse or civil partner on the first death. On the second death, the surviving spouse’s estate is then taxed at 40% above their own individual nil rate band (£325,000).
A more tax efficient alternative to consider would be to look at using a discretionary will trust wording that can provide for the partner but ensure that their own nil rate band is fully utilised.
Using a discretionary trust in this way would provide a possible tax saving of £120,000.
