Lifetime Trust

What is a Lifetime Family Trust?

A Lifetime Family Trust is basically a Discretionary Trust, set up to protect your assets for your own bloodline.  The difference between Lifetime Family Trusts and one set up by a Will Trust, is that Lifetime Family Trusts are set up literally during your lifetime, using a small settlement of £10 into the trust.

This means that as part of your estate planning you can have more than one trust (in order to effectively manage your Inheritance Tax obligations) and you give your beneficiaries- usually your children – the option to do different things with the assets you leave.  For example, one child may wish to leave any monies in the trust for your grandchildren, whilst another may wish to draw on the funds.

Why use a Lifetime Family Trust?

The main principle is that the Lifetime Family Trust allows the use of two sets of the Nil Rate Band (NRB) for asset protection planning purposes.  This is the amount of an estate that can be passed down without any liability to inheritance tax.

How does it achieve that?

Through the use of a Lifetime Family Trust the Nil Rate Band of the first deceased spouse can be protected and used for protection of the estate.  On the death of the first spouse, assets to the value of the NRB applicable at the time of death are peeled off from the state and passed to the surviving spouse via a codicil in the Will.

This codicil gift is done in such a way as to create a debt on the surviving spouse’s estate so that in the event of death (of the surviving spouse) this amount must be passed back to the Lifetime Family Trust prior to being passed down to the beneficiaries.  Interest at an agreed commercial rate can be charged by the trustees and rolled up within the outstanding debt, payable on death of the surviving spouse.  To ensure that this arrangement is effective, at least two Lifetime Family Trusts must be put in place, one trust in your name and one in your spouse’s name.  Depending on the estate size and your investment portfolio, it may be beneficial to set up more.

The two Lifetime Family Trusts effectively ensure that both you and your spouse receive the benefit of the NRB.  Under present legislation this means that £325,000 (2010/2011) each will be protected.  This arrangement could also protect the estate from future care home costs.

Why else should I use such a trust?

It is essential to seek experienced Inheritance tax advice before setting up any trust.  Lifetime Family Trusts:-

  • Protect your entire estate in event of your children becoming divorced or bankrupt
  • Protect your entire estate if your children predecease their spouse and your ex-son or daughter-in-law get remarried
  • Avoid inheritance tax being paid on your estate by your grandchildren when your children die – double taxation
  • Obtain double taxation relief on the value of a Limited company if you are small business owner

Do you really want the taxman to take 40% of your estate?

If the answer is no, and we’re fairly sure it will be, then please get in touch with us.  We won’t pretend otherwise, this is a complicated area of estate planning, but it is also one that definitely warrants working with an experienced Inheritance tax adviser.  Tax advice which results in high tax savings should be carefully considered if you are making a financial plan for your family’s future benefit.

We strongly recommend that you seek Inheritance tax advice before undertaking any type of trust.  Trusts, and their legal wording, are a complex area and you should always use experienced professionals to carry out your financial planning and guard your interests.

Are there other types of plans in which Lifetime Family Trusts are used?

Yes.  Other trusts exist under the Lifetime trust banner.  If you are a millionaire and form part of the wealthy retired group, please contact us for further information.

Still have questions on Lifetime Family Trusts?

Please register for our FREE online How to avoid inheritance tax course

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