This is something we hear regularly from clients. They might have attended a seminar and been told to put all their assets into a Trust whilst they’re still alive, to circumvent the need for their Executors to get a Grant of Probate when they die. Sometimes, they might also be told that assets in the Trust won’t attract any Inheritance Tax.
Unfortunately, this is not always the case.
Just because assets are in a Trust when you die, does not mean that your Trustees won’t need to get a Grant of Probate. This will depend entirely on the composition of your estate at the date of your death and the requirements of the bank and building societies, amongst other things.
In terms of the inheritance tax position, if you put an asset into Trust, but keep using it and/or benefiting from it as though it still belongs to you, then you have made what is known as a ‘gift with reservation of benefit’. The most common example of this is when a person puts his or her house into Trust, hoping to achieve an inheritance tax saving, but continues to live in that house. When the person dies, the value of the ‘gift with reservation of benefit’ is still aggregated into the estate for the purposes of calculating any inheritance tax due.
In addition, when assets are put into Trust, it is important to remember that you no longer own the assets outright. If you put an investment account into the Trust, it will not be as easy to access the money should you need it in future. Access to assets held in the Trust must go through the Trustees, which may cause delays.
In some cases, people can end up spending thousands of pounds during their lifetime, setting up a Trust that may not do what they expect. They may also have lost control of what could be their major assets, without any real gain to themselves or to their loved ones.