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bigduckontax
bigduckontax, Accountant
Category: Tax
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My wife and I both have provisions in our wills to set up a

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My wife and I both have provisions in our wills to set up a discretionary trust up to the level of the nil rate for IHT. With the change in the rules allowing the first deceased to pass on their Nil rate allowance to the surviving partner is there any longer a benefit to this arrangement as I understand there have been suggestions recently that this can create problems. Also if the provision is in the will does the trust have to be established if there are no assets to go into it?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and happy to be able to assist you with your question. Inter spousal bequests are outside the scope of Inheritance Tax (IT) so if say one partner dies leaving their estate to the other there is no IT payable. Furthermore, if the deceased partner does not use any of their 325K IT free allowance the surviving partner can inherit this giving a possible 650K free of IT on the second demise. Also charitable bequests escape IT also. So if your combined estates are within these limits then setting up a discretionary trust would appear to be an exercise in financial futility. Blake Morgan has a good guide to discretionary trusts here: http://www.blakemorgan.co.uk/training-knowledge/guides/2014/06/23/client-guide-discretionary-trusts/ You will immediately see that any income over 1K is taxed at 45% and the Annual Exempt Amount for Capital Gains Tax (CGT) is only 5.450K. Furthermore, if the trust is set up than any transfers in are subject to CGT and there is an 10 year charge of up to 5% by HMRC. Thus money in trust can be quickly gobbled up to the detriment of the beneficiaries. Clearly if there are no assets to go into trust then none will not be created. The will would merely be altered by means of a Deed of Family Arrangement ie by agreement between all beneficiaries. I do hope that I have been able to shed some light on the position
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
You may well need separate, trusted, local, legal advice to revise your current testamentary dispositions.