Generic info - trusts

Question 1

Outline features of bare trust (8)

Answer 1

• transfer in is considered a PET
• IHT free after 7 years
• no immediate IHT liability
• beneficiaries cant be changed
• bens can demand fund at 18
• income taxed on bens and can use personal allowance
• CGT at bens rate
• IHT payable on settlor if die within 7 years

Question 2

Outline features of discretionary trust (8)

Answer 2

• transfer in is considered CLT
• IHT free after 7 years
• if over NRB, immediate liability of 20% for trustees or 25% if settlor pays
• bens can be changed
• trustees have control over who gets income
• income tax allowance of £1k and taxed at 45% above this
• CGT for trustees is 20%
• trust fund chargeable every ten years (periodic charge) and when capital is distributed (exit charge) - not more than 6%

Question 3

What are the requirements for making a valid will (7)

Answer 3

• testator must be of sound mind
• clear intention to dispose of property
• they must be at least 18
• must be in writing
• must be signed
• signed by two witnesses
• witnesses must be present when testator signs

Question 4

Describe process of how estate will be settled if they do not make a will (6) and problems that could arise (4)

Answer 4

• administrators will need to be appointed
• they apply for letters of administration
• debts paid off
• estate then valued
• IHT calc’d and must be paid within 6 months
• IHT paid before distribution of assets

Problems;

• causes significant delays
• may not pass to who they want it to
• cannot state wishes for funeral or guardianship
• court of protection decides custody if no will