WAE WORKSHOP 8

• What is the primary objective of inheritance tax (IHT) planning by will?

  To minimize the tax liability on a person’s death
• What factors are usually considered when drafting a will for IHT planning?

  Allocation of exemptions and reliefs, exempt assets and beneficiaries, and nil rate band
• What is a trust in the context of inheritance tax planning?

  • A trust does not have separate legal personality.
  • A gift into trust takes effect as a transfer to the trustees.
  • Trustees are the legal owners of the assets, while beneficiaries hold equitable and beneficial interests.
• What is a 'will trust'?

  A trust created on death by a testator’s will
• When does a trust come into existence when created by a will?

  On the date of the testator's death
• What is required in the drafting of a will that creates a trust?

  Express wording to set out the terms of the trust, appoint trustees, identify beneficiaries, and specify the estate part
• What are the four main types of will trusts for tax planning purposes?

  1. Discretionary Trust
  2. Life Interest Trust
  3. Trusts for young people
  4. Trusts for disabled people
• What is a discretionary trust?

  A trust for the benefit of a group of beneficiaries with no fixed rights to trust assets
• What is the tax implication of creating a discretionary will trust?

  There is no immediate tax saving compared to making an outright gift
• Why might a testator consider using a discretionary trust for tax planning?

  It allows beneficiaries to benefit without accumulating wealth into one individual’s hands
• What happens to the IHT position when a child dies if their inheritance is held in a discretionary trust?

  There is no IHT to pay on the assets held in the discretionary trust
• How is a gift made to a discretionary trust typically drafted?

  As either a discretionary trust of residue or a legacy to a discretionary trust
• What is the residence nil rate band (RNRB) in relation to discretionary trusts?

  The RNRB does not apply if the deceased’s residential interest passes to a discretionary trust
• What are some non-tax reasons for establishing a discretionary will trust?

  Flexibility in distribution and protection from creditors or divorce claims
• What is the relevant property regime in trust taxation?

  It applies IHT charges to the trust instead of individual beneficiaries
• What is the duration of a two-year discretionary will trust?

  It lasts for the period of two years following a testator’s death
• What is the significance of s 144 Inheritance Tax Act 1984 (IHTA) in relation to discretionary trusts?

  Distributions made within two years are treated as made under the deceased’s will for IHT purposes
• What is a life interest trust?

  A trust for the benefit of a life tenant and a remainderman
• What tax advantage does a life interest trust provide if the spouse is the life tenant?

  Spouse exemption can be claimed on the amount passing to the trust
• How does a life interest trust compare to an outright gift in terms of tax implications?

  The IHT position is the same whether the estate passes directly or through a life interest trust
• What practical advantages does a life interest trust offer?

  It allows control over the ultimate destination of the estate while providing for the life tenant
• What should be considered regarding the needs of a life tenant in a life interest trust?

  The life tenant's needs should equal their resources plus trust income
• What are the key points regarding will trusts and their implications for inheritance tax planning?

  • A testator can create or add to a trust by will.
  • Discretionary trusts offer flexibility and potential long-term tax advantages.
  • Life interest trusts provide fixed interests and spouse exemption can apply.
  • Careful drafting is essential to ensure the trust operates as intended.
• Residence Nil Rate Band (RNRB)


  A tax relief for inheritance tax, allowing an additional £150,000 of tax-free inheritance for each individual. It's a Band that reduces the amount of inheritance tax payable.
• Discretionary Trust


  A type of trust where the trustee has the power to distribute assets according to their discretion, without being bound by specific rules or obligations.
• RNRB and Discretionary Trusts


  The RNRB does not apply if the deceased's residential interest passes to a discretionary trust. The RNRB is only available if the residential interest passes to a named beneficiary (e.g., through a will) and not to a discretionary trust.