WORKED EXAMPLE OF A WILL TRUST

Every family is different, but the following example shows the dramatic saving in inheritance tax that setting up a family trust can make.

Jim and Mary Smith are both 50. They have a 12 year old daughter; Anne. Their will leaves everything to each other and then to their daughter. Jim is self employed works and has a pension fund and some life assurance. Mary helps with the business but does not have a pension or life assurance. Their assets are:

Jim and Mary are involved in a car accident. Jim dies on the spot, but Mary is unwell for a few years before eventually passing away.

Their daughter Anne inherits everything from her mother. The first £300,000 is tax free.

The bill for inheritance tax is £148,000.

This leaves Anne the house, contents and car. But she has no cash and the The Inland Revenue must be paid £148,000 before she takes ownership! All Jim’s Life insurance, pension fund and some of his savings go to The Inland Revenue.

However, if Jim and Mary had set up a ‘will trust’ with his wife, made his life assurance subject to a trust and nominated his trustees as the recipients of his pension fund the inheritance tax bill would have been NIL and Anne would be over £148,000 better off.

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