Inheritance Tax Mitigation Using Trusts

Trusts are useful tools in legitimately avoiding IHT on death. If used properly, they can save IHT without adversely affecting your standard of living.

A trust is a way for you to move assets out of your estate so that:

  • They are potentially excluded from any IHT calculations of on your death;
  • They can be distributed quickly to the trust’s beneficiaries, as they do not have to go thorough Probate or Confirmation.

There are four main types of Trusts:

1. Bare (Absolute) Trusts – The main purpose of a Bare Trust is for the trustees that hold the assets for the beneficiaries, to be released when required.

2. Interest in Possession Trusts – with this type of trust, the beneficiaries have a right to the income from the trust, if the trust assets produce an income.

3. Discretionary Trusts – here the trustees have discretion over what happens to the income and capital throughout the lifetime of the trust.

4. Accumulation and Maintenance Trust – the trustees have discretion over what happens to the income for a period of time, but a beneficiary will become entitled to the income or the trust assets on reaching a specified age not over 25. These types of trust are no longer relevant since 22 March 2006.