Asset Planning In Your Lifetime

Some estate planning can be made whilst you are alive.

Assets could potentially be gifted to beneficiaries before your death. This could prove extremely tax efficient in terms of Inheritance Tax, as assets gifted away are fully outside of the donors estate 7 years after the gift is made.

However, rather than gifting assets absolutely, as this would mean that these assets will again be potentially at risk from divorce, creditors and long term care costs, as well as adding value to the recipients estate, it would be wise to also consider gifting with the aid of Discretionary Trusts.

The Legacy Planning Discretionary Gift Trust means that although you make a Gift to your children and grandchildren where appropriate, the asset need not enter their own estate protecting these assets from any possible claims on them in the future.

By Gifting to a Trust, the donor retains full control, however he /she cannot have access to the funds. Even if he/she having made the gift never received any benefit, but potentially could, the Gift is classed as “With Reservation of Benefit” and the full value is deemed to be in the donor’s estate at death for Inheritance tax purposes, not just the initial Gift.

Should say Mr Client make the Gift to the trust, Mrs Client can be a potential beneficiary and vice versa for a similar Gift made by Mrs Client.

The Gift Trust ensures that a spouse, children grandchildren and any other named beneficiaries can benefit at the Trustees discretion.

Post Budget 2006, these Gifts are restricted to the Nil Rate Band (plus any unused annual exemptions) for each. Hence up to £650,000 (tax year 2012/13) could be gifted in this fashion. Further chargeable gifts would attract immediate taxation of 20%.

Should both survive 7 years the strategy could be repeated for larger estates.