A Trust-based Will provides added control and flexibility to navigate the tax system effectively and capitalise on tax exceptions. This enables trustees to handle the estate based on the specifics of the inheritance tax regime at the time of death as well as the individual circumstances.
This flexibility also proves beneficial in instances such as: when it isn’t clear how the assets will be split, when an inheritor is in receipt of means-tested benefits or when one wishes to leave the decision of who to distribute a gift or charity to up to the trustees.
A handy perk is that any distributions made by the trustees in the first two years of the trust being created will be read into the Will (and so treated as if written in at the time so that the trust can, if all distributions are made in that time-frame, be dismantled without additional cost). This is particularly handy given Islamic inheritors may change and you may not have had it updated to reflect that.
A discretionary trust does, however, get taxed on every 10-year anniversary of its creation at a maximum of 6% (any assets covered by the nil-rate band are excused from this). This sounds worse than it actually is – within the first 10 years any property transferred out of the trust will be treated as if it is still valued at the date of death whilst still using the most up-to-date nil-rate band threshold (and these tend to go up over time). This is called the Capital Gains Tax uplift on death.
Finally, if any inheritors are bereaved minors or disabled people, so long as their share can be distinguished within the trust, it can be ring-fenced for special tax treatment as a ‘trust for vulnerable people’. This can be claimed by submitting a ‘Vulnerable Person Election’ form. This will have inheritance, income, and capital gains tax benefits that are further explored here- https://www.gov.uk/trusts-taxes/trusts-for-vulnerable-people).
See our introductory video to the trust-based will here. You can set your Will up in 20 minutes here.