The recent death of the Duke of Westminster has seen campaigners calling for the Trust system to be reformed, after it was announced that the vast majority of his £9 billion estate will remain exempt from Inheritance Tax (IHT).
According to reports, the IHT bill on the estate should have totalled around £4 billion. However, the Grosvenor family (whose head was the Duke of Westminster) has made clever use of Trust structures, enabling them to pass assets down through the generations without attracting vast death duties.
A Trust structure means that assets are legally owned by the family as Trustees, not individually. This means that they are not subject to tax when a family member dies. As one of the Trustees, the Duke could sell and buy assets within the Trust but he did not have absolute rights over them.
Trusts and similar structures are part of the legal framework because they have useful purposes, some of which is unrelated to tax planning. The role of a discretionary Trust is to protect family assets across the generations – working as a kind of insurance policy.
In theory, anybody could set up a discretionary Trust to try and avoid IHT but the costs involved in doing so could would probably be prohibitive. Recent tax changes mean that Trusts are less attractive to those who want to establish them afresh; they attract a 20% tax of the value of the assets being placed into Trust and a periodic charge of between 2-6% every ten years.
At Kings Court Trust our legal and tax team is often asked by families about Trusts in Wills. It is important to remember that although the Trust in the Will is treated as coming into effect when a person dies, there may be some decisions for the named Trustees to make and it may be necessary for legal documents to be drafted in order to set up the Trust appropriately.
As part of our estate administration service Kings Court Trust can assist with Trusts and answer any questions that you may have. Contact our client services team on 0300 303 9000 for an informal discussion to find out more.