Trusts a 'great opportunity' for lessening inheritance tax

Well-planned trusts can prove a "very effective way" to reduce inheritance tax liabilities and ensure that as much of your wealth as possible is passed onto the next generation, according to expert Karen Dent.

In an article for the Journal, Ms Dent has described trusts and inheritance tax planning as a "great opportunity" before "the inevitable".

Some factors which may affect the performance of trusts, including those in Northern Ireland, are divorce and bankruptcy.

One way to protect a trust is to ensure there are a wide range of beneficiaries.

In this way, if one goes bankrupt, not all of the funds will be lost.

Some factors make trusts more at risk if they are not considered by solicitors putting together the package.

These include if the person who created the trust is its main beneficiary, if he cannot replace trustees and if no distributions from the trust have been made to anyone else.

Ms Dent concludes in the Journal that "any attempt to dress one thing up as another will generally be picked up by the courts and tax authorities".

Tips given by This is Money for avoiding hefty inheritance tax bills include giving gifts at least seven years before you expect to die - gifts given more than seven years before death are exempt, putting money into a trust from which children or grandchildren will benefit at 18, and giving large gifts - up to £5,000 to children - on special occasions such as weddings.

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