Thousands lose trust in wills

Christine Ross says it's difficult to make firm recommendations until the changes become law

Rising property values mean that more and more people now need to make plans to shelter their estates from Inheritance Tax (IHT).

Upon death, assets worth more than the nil-rate IHT allowance of £285,000 are taxed at 40%, so even those with modest homes in many parts of the country are affected by a tax which historically targeted the rich.

One of the most important, but also one of the most complex ways of minimising IHT is through the use of trusts.

As well as tax planning, trusts are often used to put assets aside for those, such as children, who are unable to manage them properly straight away.

The Chancellor's Budget proposals are likely to affect only some types of trust, although until the Finance Bill becomes law in June, there is considerable uncertainty as to the exact extent and nature of the changes.

It seems likely that Gordon Brown's moves will not impact on the 'discretionary' trusts set-up by couples to make best use of both partners' full nil-rate allowances.

At risk are 'accumulation and maintenance' (A&M) trusts which are commonly used to protect assets until children or grandchildren reach 25, sometimes whilst providing an income stream in the meantime.

The changes also look set to alter the rules surrounding 'interest-in-possession' (IIP) trusts which confer to a fixed income entitlement to a named individual.

New A&M and IIP trusts will incur an immediate 20% inheritance tax charge on all assets added beyond the nil-rate threshold, with additions to existing trusts also affected.

There will also be a tax charge on the trust every ten years from the date of its creation, and another charge at its winding-up.

Brian Crowe is worried that his will may be affected

Working Lunch viewer Brian Crowe and his wife want to leave as much money as possible to their Godchildren.

"Our solicitor suggested a clause which allows us to put the nil-rate amount into a trust on the first will death."

We asked Christine Ross of SG Hambros what she makes of the changes and if Mr Crowe should be worried.

"Everybody who has incorporated any sort of trust clause in their will needs to have them reviewed as soon as this passes into law.

"If the clause allows for assets to pass into trust and they are above the IHT threshold there could be a tax charge on the amount going in above the threshold.

"In this particular case though, the clause says the assets going into the trust are only up to the value of the IHT nil-rate band, so this could be OK and miss out on this new penal tax charge."

However with experts scratching their heads and no-one quite sure of the Treasury's thinking, those with wills should hold tight until the summer, or seek professional advice in the meantime.

Watch Gillian's full report on the Working Lunch player.

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VIDEO: Trust Tax Changes

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