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REVIEW SUMMARY

Gift Trust

A gift trust is a special legal and fiduciary arrangement that allows for an indirect bequest of assets to a beneficiary. 

A gift trust provides an IHT planning route for those who want to make an outright gift in a tax-efficient way.

Some individuals are averse to making substantial gifts directly to minors. For example, if they have young children, they may want the children to inherit the money at an age when they are more financially mature, or they may want to gift away money without affecting their spouse’s access to the funds.

Overview
FAQ
Customer Reviews
Expert Verdict

Key features of a gift trust:

  • Any gift that exceeds the annual gift tax exclusion amount is liable for tax but the Gift Trust helps evade it.
  • This type of trust is typically used by parents or grandparents who want to establish a trust fund for their descendants.
  • Using a gift trust, you can make a gift without giving up full control over the assets gifted.
  • The trust can be established with single or joint settlors.
  • The person appointed as a settlor does not automatically become a trustee neither a beneficiary.

Who the gift trust is suitable for:

  • The gift trust is suitable to anyone who is UK domiciled or deemed UK domiciled for IHT purposes and who is capable of gifting capital, without the need to access it in the future.
  • Establishing the trust as a bare trust would be suitable for individuals who want to create a potentially exempt transfer for IHT purposes, who have specific beneficiaries in mind and do not want to report requirements to HMRC.
  • Establishing the trust as a discretionary or flexible trust would be suitable for settlors who might want to change their choice of beneficiaries in the future and who want to create a chargeable lifetime transfer for IHT purposes.

Advantages and disadvantages of a gift trust:

  • If you are looking to secure your future generations finances and gain tax benefits while doing so then this trust can help. Understanding the rules and regulations of gifting can add value to the grantors and the beneficiaries.
  • One of the drawbacks to a Gift Trust is that the long-term wealth creation capacity of the fund can be affected when sizable sums are given to beneficiaries (children in particular). This can be bypassed by setting restrictions, such as limiting the amount or frequency of withdrawals or ending future gifts to beneficiaries who withdraw funds immediately.

 

The Pros

> Inheritance tax planning: growth on the gifted money is immediately outside of your estate. The gift is fully outside of your estate after 7 years
> Choice of trust: the trust can be written on either an absolute or discretionary basis, to suit your requirements
> Probate: trustees can access the assets immediately upon death
> Suitability: the gift trust is suitable if you do not require any access to the capital or any growth from the trust. Payments can be made to trust beneficiaries at any time (but not for your own benefit)

The Cons

> Potentially expensive
> Seek help from a professional financial planner
Should I use a gift trust if I will need access to my assets?

No.

A gift trust should not be used if you may need access to your capital.

If you require access, other solutions may offer some protection from inheritance tax (IHT).

You can find all our independent reviews of international trusts here.

When is a gift trust used?

A gift trust is commonly used by parents or grandparents who want to establish a trust fund for their children or grandchildren.

A gift trust is a viable method to avoid taxes on gifts that exceed the annual gift tax exclusion limit.

Have you used a gift trust?

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Expert assessment of a gift trust

A gift trust can be a useful solution, but whether it is applicable has to be determined on a case-by-case basis, as does the case for using trusts in general.

If you already have a trust structure in place and would like a Second Opinion - or, if you are wondering whether the utilisation of a trust could be of benefit to you, contact us.

 

NOTE: Because trusts are so unique to each individual, it’s impossible to give them a rating for their overall performance and suitability. Therefore these reviews do not come with a star rating.

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