Trusts FAQs


Please find below our most frequently asked questions with relevant answers.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.

Who is the settlor?

A settlor is a person who creates a trust. The settlor will transfer or settle assets on the terms of the trust for the benefit of the beneficiaries. The trustees will manage the trust assets for the good or benefit of the beneficiaries in accordance with the terms of the trust document.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.

Can a beneficiary also be a trustee?

Yes. Whilst a beneficiary can be a trustee the arrangement could produce a conflict of interest if the beneficiary used their position to influence the other trustees for their own benefit. It is, therefore, advisable that beneficiaries are not appointed as trustees or at the very least a professional such as a solicitor is appointed together with the beneficiary to provide independence and impartiality.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.

Can a trustee be held responsible if something goes wrong?

Yes. Anyone accepting an appointment as a trustee needs to be mindful of this risk. If a trustee does something beyond the powers granted to them in the trust deed then the trustee can be held personally liable for any loss or damages sustained by the beneficiaries as a result of the breach of trust.

Inexperienced trustees, especially those who are trustees of family trusts, should seek professional advice to ensure that they fully understand their obligations to the beneficiaries and to ensure that they properly manage the trust funds in order to protect themselves from personal liability.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.

Can I minimise inheritance tax without using trusts?

Yes. Giving away assets can be a very effective away of reducing the value of your estate for inheritance tax purposes. There are, however, strict rules that apply when making gifts.

For example:

Unless a gift falls into a list of specific tax free gifts then most gifts that you make to other people during your lifetime are classified as potentially exempt transfers or PETs for short.  It is important that you survive for seven years after making a PET to ensure that no inheritance tax will arise. If however, you die within the seven year period then the PET is reassessed and added to any other taxable gifts that you may have made during the seven years before making the PET. This means that upon death gifts made by you during the 14 years before death could be added to your estate to work out how much inheritance tax is due on the estate. Relief may be available on the failed PET depending on how long you live after making it. The relief is known as taper relief and reduces tax proportionally depending on how long you live after having made the gift. If the PET was made less than three years before death then there will be no reduction in tax. If, however, the PET was made three to four years before death then tax is reduced by 20%. If you survive the PET by four years or more then the tax is reduced proportionately with a maximum reduction of 80% should you outlive the gift by 6 to 7 years.

Gifts can be made as part of your normal expenditure providing that the money comes from your surplus income and the gift does not reduce your usual standard of living. There must be a regular pattern of gifting so that it forms part of your regular expenditure. There is no monetary limit and as such the normal expenditure out of income exemption is potentially the most generous available other than the spouse exemption.The normal expenditure out of income exemption is not however, automatically given and has to be claimed retrospectively by the deceased’s personal representatives. HMRC may require documentary evidence to validate a claim for the exemption and therefore it is crucial that the person making the gifts out of income maintains detailed records during their lifetime.

Other gifts can be made upon marriage and customary occasions such as birthdays, Christmas and anniversaries. Providing the tax rules are correctly observed for example there are limits as to how much can be gifted to couples entering marriage, such gifts will also be exempt for inheritance tax purposes.

Gifts to charities, museums, universities, the National Trust and certain other bodies including political parties are also exempt for inheritance tax purposes. If you make a gift to a charity in England and Wales it must be registered or comply with the requirements of the Charity Commission for the gift to be exempt.

As with all inheritance tax related gifts, the person making the gift must not receive any benefit (future or otherwise) either directly or indirectly from the gifted monies or assets for the gift to fall outside of their estate for inheritance tax purposes. If, however, a benefit is retained for example a parent gifts property to a child but retains the rental income from the property then a gift with reservation of benefit arises and the entire value of the property will fall into the parent’s estate for inheritance tax purposes.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.

If I leave 10% of my estate to charity will my inheritance tax bill be reduced?

Testators who leave 10% or more of their net estate to charity will benefit from a lower rate of cross inheritance tax fixed at 36%, instead of 40%. The government introduced this reduced rate of inheritance tax in 2012 to encourage charitable giving. It is effective in respect of all deaths occurring on or after 6th April 2012.

Attention needs to be paid to the detailed provisions of the legislation in order to successfully claim the reduction on death. A basic will simply leaving 10% of my residuary estate is unlikely to be adequate. This is because different elements of a person’s estate are subject to inheritance tax on death and as such a special calculation needs to be carried out in respect of each separate element. If the testator’s will does not specifically refer to the statutory components which make up the special calculation then there is the risk that the reduced 36% rate of inheritance tax will be lost.

It is, therefore, most important that a professionally drawn will is prepared for testators who wish to claim the reduced rate of inheritance tax.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.

What is severing a joint tenancy?

Where land is owned by two or more people they are known as co-owners. There are two ways in which co-owners may hold property:

As joint tenants; &

As tenants in common.

Joint tenants

Under a joint tenancy each co-owner has an indivisible share in the property so that all the co-owners are equally entitled to the whole property. If one of the co-owners dies then his or her interest in the property will automatically pass to the surviving co-owners under the law of survivorship. This will happen regardless of the terms of the deceased’s will or otherwise.

Tenants in common

If co-owners hold the property as tenants in common they each have a distinct share in the property. Co-owners are advised to indicate expressly the proportions in which they hold the property and this can be done by way of a declaration of trust. Unlike joint tenants, if one of the co-owners of a tenancy in common dies then his or her interest in the property will pass in accordance with the terms of his or her will or under the rules of intestacy if there is no will.

Severance of joint tenancy

A joint tenancy can be converted into a tenancy in common through a process known as severance. A solicitor can prepare the legal paperwork enabling severance to take place and can also update the title deeds and records at the Land Registry evidencing this important change in the ownership of the property.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.

What is agricultural property relief?

Agricultural property relief applies to reduce the amount of inheritance tax payable on gifts of agricultural property during the lifetime of the farmer or upon death. The relief can only be claimed on the agricultural value of the property or agricultural land in question.

Agricultural value is not the open market value but rather the value of the property used for agricultural purposes. It does not include any development or hope value, or farmhouses that are not character appropriate to the agricultural land.

Although agriculture is not specifically defined in the legislation the following are just some of activities recognised as agriculture:

Horticulture;

Fruit growing;

Dairy farming;

Livestock breeding and keeping;

Animals kept for the production of food, wool, skins, fair or for the purpose of its use in the farming of land;

Grazing or pastureland;

Nursery grounds; &

Woodlands ancillary to other agricultural land.

The following activities are not agricultural and will therefore not attract the relief:

Keeping birds or animals for sport;

Grazing of land by horses that are not connected with agriculture;

Fishing; &

Land principally used for purposes other than agriculture even if there may be occasional agricultural use.

The agricultural property must also satisfy specific occupation and ownership conditions in order to successfully attract the relief. Whether a farm or other agricultural enterprise will qualify for agricultural property relief can be a difficult issue and legal advice ought to be obtained.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.

What is business property relief?

Business property relief provides relief from inheritance tax on gifts of specific types of business property during the lifetime of the business owner or upon death. Business owners should, therefore, ensure they qualify for this valuable tax relief enabling them to pass on their business free of inheritance tax.

Most of what normally would be considered as business property qualifies for the relief. However. there are boundaries. For example, no relief is available if the business consists wholly or mainly of dealing in securities, stocks or shares, land or buildings or making or holding investments.

It is, therefore, very important that the business or company in question is carrying on a qualifying trade. Simply owning a business does not necessarily mean that business property relief will be available. The business accounts should be reviewed periodically to ensure that the business continues to meet the qualifying criteria for the relief.

Retiring from your business and planning for succession can give rise to a number of different options which could produce potentially complex tax issues. As part of an overall review a professional such as a solicitor or accountant can assess your proposals and identify specific tax issues and opportunities.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.

How do trusts end?

A trust can end when there are no assets left in the trust, usually because the trustees have transferred them to beneficiaries who have become absolutely entitled to them under the terms of the trust. A trust may also end because the value of the trust fund has become so low that the costs of running it are no longer justified. Whatever the reason, trustees should plan ahead before ending a trust to mitigate potential tax consequences. Professional advice should, therefore, be sought to in order to utilise available tax exemptions and reliefs. Trustees are also encouraged to seek advice before terminating the trust where they have previously made distributions to beneficiaries and also where beneficiaries are missing.

In some cases trustees may consider that ending the trust is not in the best interests of a beneficiary. For example, a beneficiary may become entitled to the trust fund upon 21 years but the trustees may feel that the beneficiary is not yet mature enough to sensibly manage the funds themselves. Trustees may be given powers in the trust document to defer or delay the beneficiary’s entitlement by exercising powers of advancement. If the trust document is silent then deferment may be achieved by the trustees using the statutory power of advancement under s.32 Trustee Act 1925. Advancements must be made by a formal deed which a solicitor can prepare for a fee that can be settled from the trust funds.

For anything further, one of our specialists would be delighted to meet you either in our office or in your own home to talk through your requirements and answer any questions. Please contact us at any time.