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As mentioned in an earlier blog post, trusts must be taken into account when valuing an estate left in a testator’s will. A trust may need to be set up because the deceased has chosen to put some of their assets into a trust, or there may be a trust already in place as the testator set it up during their lifetime.

The general – and most simple – rule of thumb is that Inheritance Tax will be owed on any estate worth more than £325,000. However, when there are trusts included within the estate, it can be more difficult to calculate the figures.

It could be that the testator were themselves the beneficiary of a trust. There are different types of trust, and one that could be involved is known as a ‘bare trust’. A bare trust is one in which the beneficiary is meant to have everything, that is both assets and income, relating to the trust. If the beneficiary dies before the trust matures, then the entire trust becomes part of their estate.

A second type of trust is an ‘interest in possession’ trust. This type of trust is one in which the beneficiary benefits only from the income, not the assets, of the trust. If this trust was created before 22nd March 2006, or if it was set up after 22nd March 2006 and was an immediate post death interest, a disabled person’s interest, or a transitional serial interest trust, then it must be calculated within the valuation of the estate.

The third type of trust is one in which the beneficiary only has an interest in the assets. Again, it is perfectly possible that this might be subject to Inheritance Tax, especially if it is added to the total value of the estate.

Finally, a will can state that some (or even all) of the deceased’s assets must be placed into a trust (a ‘will trust’). It is the executor’s task to ensure that this is done in accordance with the testator’s wishes. It is down to the trustees to pay any Inheritance Tax that is due once the trust matures.

Trusts can be a wonderful way to ensure that the people you want to inherit certain assets become the beneficiaries once a certain amount of time has elapsed. In order to make sure that you choose the correct path to get it right, just contact us. We know how hard it can be, and we know how to help.


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