How Trusts can prevent generational Inheritance Tax and the burden placed on your heirs.

The burden of dealing with Inheritance Tax?

If the value of your estate exceeds the Inheritance Tax threshold, HMRC will expect that any tax due is paid before they will allow the Grant of Probate. In other words, the tax has to be paid before your beneficiaries receive their inheritance.

If liquid funds are not available and the Inheritance Liability is not paid within 6 months of the deceased’s death, interest will be charged.

HMRC will often allow the tax liability to be paid in instalments over a period of time (often 10 years). However, that agreement has to be maintained regardless of whether funds have been released from assets that need to be sold.

Assets placed into Trust won’t necessarily avoid Inheritance Tax but, they are not subject to Probate and the Trust beneficiaries can access them immediately.

Mitigating generational Inheritance Tax?

It is not unusual for assets to create an Inheritance Tax liability more than once.

Assets that exceed the Inheritance Tax threshold will be subject to taxation on the death of the owner.  Once the assets have been inherited, they will form part of the beneficiary’s estate. If the value of their own estate, or with the addition of their inheritance, exceeds the Inheritance Tax threshold, the inherited wealth will be subject to Inheritance Tax again along with their own assets once they have passed on.

Leaving assets to someone via a Trust can prevent those assets ever forming part of the beneficiary’s estate and therefore avoiding a next generation Inheritance Tax.

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