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Trusts news articles

Trusts: The tax treatment of discretionary trusts

These notes apply to trusts where the creator of the trust (the settlor) and his/her spouse cannot benefit from the trust.  If the settlor or his/her spouse can benefit from the trust, special rules apply. Inheritance tax Inheritance tax depends very much on the sequence of events which occur after the trust is set up. If the trust is contained in a will the trustees can, within two years from the date of the testator’s death, distribute the whole of the trust fund to one or more beneficiaries without any liability to inheritance tax.  After the end of this two year period, or in the case of a trust created other than on death, inheritance tax will be due under the “relevant property” regime. Under the present law this will mean inheritance tax at up to 6% of the value of the trust assets every 10 years, and charges at …Read More

Trusts: Can trusts protect assets from divorce?

Trusts have been used for many years as a way for families to pass wealth down to the next generation. However, if a trust is set up with the specific intention of protecting family assets in the event of a divorce, it may not be successful.  The court will look at whether the parties were engaged or married at the time the trust was set up.  If the marriage was already in difficulty, the court will almost certainly treat the trust assets as matrimonial resources. Although trusts generally give the trustees control over the distribution of trust assets to the beneficiaries, a judge in divorce proceedings can order the terms of a trust to be varied.  This can, however, only occur if the trust document contains the relevant powers needed to be able to vary its terms. As an alternative, the court can use “judicial encouragement” to encourage the trustees to provide a benefit to the spouse who is …Read More