Succession Planning - Discretionary Trusts
  • 13th Jan 2016

Background

Our client, a widower, has four children, one of whom lives abroad, and a number of grandchildren (ages 5 – 21). Our client owns a successful property investment business and three of his children are shareholders with him.

Problem

Because of the nature of the business assets and the lack of Business Property Relief for Inheritance Tax purposes, as well as the fact that not all of his children are involved in the business with him, our client has struggled for a number of years in deciding how to divide his estate up equally amongst his children under his Will.

Solution

We suggested that our client should consider leaving his estate to Trustees to hold upon discretionary trusts with a letter of wishes to guide them as to how they should consider dealing with his assets following his death.  This would ensure flexibility of division of assets following his death, as well as affording them the luxury of time before appointing assets out, if at all. Further, because it was likely that the assets would be retained in trust for some time, We advised our client to consider using a number of “pilot trusts” in order to reduce the ongoing Inheritance tax liability on the administration of the trust, as well as to keep the assets out of his children’s estates and therefore avoid an IHT charge on their estates.

What this means to the client

Peace of mind in knowing that the Trustees will decide how to deal with matters following his death, bearing in mind the guidance he has left (which can be updated over the years by simple letter rather than by expensive updates to his Will), as well as the conduct and financial situations of his respective children. The added bonus for his children (and grandchildren) is that the trust assets can be loaned to them, rather than appointed out absolutely, so that the value is not then taxable in their own estates.

For further information in relation to succession planning please contact a member of the Tax and Estate Planning team.