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I have some property that I want put in a trust to pass to my daughter without having to go to any court. What is the best way to do this? I would also like to minimise the amount of tax payable on the property.
Hugo Smith, partner at law firm Bircham Dyson Bell, says you should obtain a grant of probate for your daughter, which can be done through a court. This is the most straightforward way for a deceased person’s representatives to obtain legal title to his or her assets.
However, depending on the complexity of an estate, it can take two to three months to obtain this probate. Another thing to consider when deciding whether to go down this route is that once you have died, your bank accounts will be frozen until the grant is obtained and this may lead to short-term financial difficulties for your daughter.
You can avoid having to obtain a grant of probate for your daughter by putting your property into trust during your lifetime. If you give an asset away while you are alive, this asset will not form part of your estate on your death and so a grant of probate will not be needed for someone to access that asset. While a gift does not have to be in trust – if circumstances allow, you could simply give it outright – a trust does give you more control. This is particularly useful if beneficiaries are young.
If you wish to benefit from the trust during your lifetime you will need to set up a simple trust with “fixed interests”. This means you would be the only beneficiary during your lifetime and the trust assets would pass automatically to your daughter on your death. If you do not need to be a beneficiary of the trust then you could create a discretionary trust instead, where the trustees have “discretion” about how to distribute the trust’s capital.
Creating a trust should not be looked on as an simple solution, however. It is a formal legal arrangement and will mean that the property is no longer yours, but instead belongs to trustees. There will be costs of creating the trust and administering it properly; accounts should be prepared each year and a tax return will need to be filed if the trust assets produce any income, or if they are disposed of.
Putting assets into trust also raises complex tax issues, particularly if you still wish to use the assets during your lifetime (for example, continuing to live in a house owned by the trust). You would ordinarily be limited to putting into trust assets worth no more than £325,000 without an immediate tax charge, and an inheritance tax saving would only be obtained if you survived for seven years from the creation of the trusts and you were neither a beneficiary of the trust nor did you benefit from any of its assets.
Further tax charges would also potentially arise during the lifetime of the trust, on every tenth anniversary of its creation, depending on the value of the assets within the trust. Finally, it is also worth noting that if in future you need local authority nursing care, any gift made to a trust can be set aside if the local authority considers it was done deliberately to deprive yourself of assets.
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