Every year, we can all gift up to £3,000 in cash or assets without attracting inheritance tax. This gift allowance can be carried over from one tax year to the next up to a maximum of £6,000. In addition other amounts can be given away each year which don’t count towards the “gift allowance” including wedding gifts and smaller sums.
Trusts are a particularly useful method to ensure that the right people get the right money at the right time. It’s important, however, to establish the correct trust and appropriate life insurance or life insurance investment bond to support it.
Broadly speaking, there are two types of trusts available, absolute and discretionary trusts. An absolute trust ensures that a named individual has the legal right to the trust fund from age 18. A discretionary trust provides a greater degree of flexibility and enables the trustees to apportion the trust fund to beneficiaries at their discretion. This flexibility, however, involves a higher degree of administration, with the potential risk that the trustees will be taxed on income or capital gains made within the trust.
If arranging life insurance or a life insurance investment bond to protect a young family, it’s important to appoint trustees who understand their role in using the capital appropriately while the children are dependants and distribute the fund when they reach 18.