Gifting and Trusts
What Grandparents need to know
So you’ve welcomed a new grandchild (or grandchildren!) into the world. Seeing their parents juggling all the responsibilities and costs of caring for young children that you remember so well, you’d like to do something practical to help.
And with the right advice, there are ways to financially assist your children and grandchildren while still planning tax efficiently for your whole family’s future.
So should you gift cash or assets directly to your children and grandchildren, or set up a trust that can benefit them (either in your lifetime, or after your death)? What are the advantages and disadvantages?
You can make gifts cumulatively of up to £3000 each tax year (not, as some believe, several gifts of £3000) without attracting any tax charges. You can also make gifts of no more than £250 to as many people as you like.
If you make gifts over the £3000 threshold, then those monies or assets will continue to be treated as part of your estate for the following seven years. So if you should die within that period, those gifts will still affect your family’s inheritance tax liability – even though in practical terms your estate doesn’t own them anymore! To find out exactly how this works, see our previous article: The 7 Year Rule – Inheritance Tax and Lifetime Gifts.
There are a few types of larger gifts that are exempted, including gifts given on marriage, and donations to charities or political parties.
For something you give to qualify as a gift, it must be given freely and without conditions. You cannot continue to derive any benefit from the gift (ie, signing the house over to your adult children, but continuing to live there rent free).
Even if you are confident in giving large gifts that you will survive another seven years, or have an insurance policy in place to protect your family from IHT liability if you don’t, be aware that gifts given to your adult children can be claimed in the event of a divorce, or become property of a future spouse should your child marry or remarry.
There are many different kinds of Trusts, so it’s essential to get expert advice from an experienced professional in setting up your Estate Plan.
The main source of confusion when it comes to Gifting and Trusts is the issue of Gifting into Trust. When you make Gifts into a Trust that you have set up during your lifetime, then those Gifts are subject to the Seven Year Rule the same as any other type of Gift.
You may be thinking, why set up a Trust when there’s no superior tax advantage in gifting into it?
But Trusts have many other advantages which you may wish to take advantage of:
- If set up correctly, your beneficiaries may not have to wait for Probate before accessing their inheritance;
- You can ringfence inheritance for specific family members (ie, children or grandchildren), protecting money and assets from being lost due to divorce, or death and subsequent remarriage.
- You can protect your Estate from Will challenges – Trusts cannot be contested the way that Wills sometimes can and, with Will challenges on the rise, a Trust can protect your wishes more securely.
- You can plan for your family’s future and specify what the Trust is to be available for (ie, first home purchase, education, marriage, or even when your grandchildren have children of their own!)
- You can allow your adult children to benefit from a Trust, while preserving the bulk of it for your Grandchildren – thus saving your children from a potentially costly addition to their own Inheritance Tax liability.
The finer details of Gifting and Trusts are complex and any plan made must take your very specific circumstances and wishes into account. Here at Just Wills and Legal Services we are available at any time to come to your home, or meet at a neutral location, to give you free advice on your Estate Plan before you make any decisions.
So put a plan in place for the future of your family – call us today.
For more information get in touch with us at Just Wills and Legal Services on 01342 477102 to book a free consultation.
This article is for general information only and does not constitute legal advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.
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