The use of trusts on death, post-Finance Act 2006

Posted: February 5, 2007

Download Full Article: The use of trusts on death, post-Finance Act 2006 (November 2006).pdf

Introduction
The purpose of this paper is to discuss the use of trusts on death, and in particular the tax consequences of various structures that may be adopted in order to pass wealth down from one generation to the next. The older generation will wish to pass down as much wealth as possible to the younger – and as little as possible to the taxman – but does not necessarily want the younger generation to get all the money immediately, or to receive fixed amounts regardless of their circumstances and needs at the time of receipt.

The amendments made by the Finance Act 2006 ('FA06') to the Inheritance Tax Act 1984 ('IHTA 1984') generally limit the options for retaining flexibility over who should get what when while enjoying the various tax advantages the legislation confers on certain types of trust.

This paper considers the new rules with particular regard to trusts established on death, including by post-death variation or distribution. It considers first, the new categories of trust; second, what now forms part of a person's estate; then the taxation of the various categories; how the benefits and disadvantages of each might be weighed up in any particular case; and what can be done by post-death variations of wills and distributions from trusts. A number of practical points are made along the way, and a further point regarding the administration of mixed trusts is made at the end.

(For full paper please download using link at the top of the page.)