Discretionary Will Trust

Making a Will is the only way you can mitigate the Law of the Land and make sure that your express wishes are followed. Using it in combination with a “family trust” provides a very powerful tool to mitigate Inheritance Tax legally.

When a Will is drafted specific provision can be inserted to establish a Discretionary Trust upon the first death. This Trust is designed to accept assets up to the value of the personal tax-free allowance when the first spouse dies, which is currently £325,000.

However rather than having to pass cash into the Trust and by doing so potentially having to sell assets to realise the funds, the Trustees are given powers to accept a Loan Note (IOU) from the surviving spouse. In the meantime the surviving Spouse has full use of the assets. This IOU is held by the Trustees until the death of the second spouse when it is called-in as a debt on the Estate.

In effect this means rather than lose out on one of the valuable tax free allowances, the couple have been able to ensure that both are used, this saving up to £130,000 in inheritance tax. Upon the second death, the Loan to the Trust is repaid by the Estate of the deceased which passes tax-free to the Trust beneficiaries (usually children/grandchildren).

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Tax Planning is not regulated by the FSA.