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  • Tax

    Family trust

    I have been seeking advice on the Topic Of Trusts

    I have been advised on the following and I would like some general info to the pros and cons

    My wife and I own a Ltd Co My wife owns 33 shares in the company and I own 67 the company own Residential Property ie BTL all the properties have Mortgages which we have both give  personal Guarantees

    All Mortgages are repayment and covered by life insurance until the Mortgages are repaid in 25 years

    The Company is also Managing my own personal owned BTL arranging repairs collecting rent and charging a competitive fee for doing so

    My Tax advisor has said we can set up a family trust when we would be the Trustees and we can give our shares into the trust an

    and we can use our IHT allowances  to do this

    My questions are as follows

    My advisor has said we can gift the shares in our name into the trust with No CGT ???

    If I were to transfer the shares can I use Mortgages to buy further property for the family trust I would of course be prepared to guarantee  the mortgages again

    The life insurance I have would be written in trust and would be paid into the family trust on my death allowing all debts and mortgages paid

    My understanding is because the shares are held in the trust our estate would not have to pay IHT on my death

    My understanding is We would still be trustees and be allowed a salary for running the company but we would not be allowed dividend income because we no longer own the shares in our name

    I don't want to get too technical with the questions so just give me the bare facts as you see them

    I feel the above ticks all the boxes and if it can be done it would allow us to pass on property now for the benefit  of the family after we are gone

    and avoid IHT

    the result would be the Family Co at present would be owned by the Family Trust

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    Learn Change and Adapt ?????

    The dubious benefits of holding investment property in a limited company to one side, you should be exceptionally wary of using trusts other than for simple insurance or when providing for a child/relative with difficulties/disabilities.

    Trust seeking to mitigate IHT where the real or underlying assets are either property based, income producing, or likely to experience capital growth, are highly complex, and will almost certainly require counsel's opinion (legal opinion and legal fact can be two different things), are expensive to set up, may result in an immediate 20% IHT charge, be subject to a 6% charge every ten years, suffer an exit charge, pay the highest rates of tax for income etc. within the trust, and require their own annual accounts.  Moreover, lenders hate Trusts with a passion as it is almost impossible for them to perfect their security, so you need to look at what they think before acting.

    There are other ways in which IHT can be mitigated.

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    Thank you Tony Invaluable advice

    DL

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    Learn Change and Adapt ?????

    I would be surprised if anything involving forming a trust was the best solution these days

    AIUI the IHT bill is dealt with by the life insurance policies and that you have also gone a step further and also set up insurance that will clear all the debt that the business has too

    The cost of setting up, administering (and, if needed / wanted at any point undoing) a trust is considerable

    There can be potential problems later on (if the beneficiaries fall out, if the beneficiaries disagree with the trustees etc.)

    Are there particular reasons why you can't achieve what you want to by gifting shares in the business and / or employing the people you intend to inherit in pensionable jobs?

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    We've not had good experiences with trusts. Unless the person setting it up is 100% sure of what they're doing and 100% trustworthy then it can bring a lot of hassle! Each case is different and I would suggest a second opinion.

    We refer to it as it as The Truss, as in trussed up like a chicken!

    Everything becomes more complicated with a trust we've found such as gifting.


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    Thanks so much for all the input

    I think it may be helpful for you to see the reason why I want to tie this up in a trust or not as the case may be

    I have only one son from a pervious marriage who is married and has two children  

    My son is 34 and my grandchildren 7 and 10

    I have re married and my wife and I own the Ltd Co

    our wills leave every thing to the survivor at present

    My son is worried that If I did he could be cut out of his inheritance ie my wife would change her will and leave it to her family

    I can understand my sons view on this and I don't want my Property which I have built up before I married my second wife going to anyone else but my family

    I must add my wife has no children and only our family home and the shares in the Company so My wealth is much grater than hers

    So I want to tie up the family company to go to my own family line with out question

    My wife is totally agreeable to have a income if I did only but have no capital assets

    My property will be in two parts

    1 is the personal BTL which will transfer to my wife on my death

    2 the Property Company with investment property which I will be happy to give away into a trust

    I am trying to protect what I have built up

    I also like he thought of a trust so that when my son and his Children have benefit from the trust there wives and future wives can not touch the family trust encase of divorce or debt problems

    I just want to do what is right by them all and make sure my son and his children and his children's children are taken care of

    any thoughts on this would be helpful

    From what has been said so far I think the time to transfer my Ltd Co would be after I have done the Landlord shuffle which will take me around 6 years  

    I am taking about 10s of property here 50% needs to done via my Ltd Co

     


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    Learn Change and Adapt ?????


    Why not change your will(s) to include your son and grandkids now?

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    I did think about that but my wife could change the will after I had passed

    also If I gave them the assets now ie shares  there wives on divorce could take 50% of what I had left them ???

    I was advised it would be better to leave all assets to the survivor two lots of IHT allowance

    If my wife passed before me there would be no issue but I am 15 years older than my wife

    so I would imagine I would go first LOL


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    Learn Change and Adapt ?????

    What I've learnt about trusts is they're set up with various possible scenarios in mind which may or may not actually happen. And it's the unforseen that causes the problems with them in that they're inflexible from what I've experienced.

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    I can see what you are saying

    It a bit like holding sand in your hand which ever way you move some falls away

    Its a nightmare trying to do the best for everyone

    such a lot to think about

    I don't want to see my work broken up and I want to protect the generations after I have gone

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    Learn Change and Adapt ?????

    You've already given reasons similar to the trust I've experienced, but over the years those may become more or less relevant. The one main reason I dislike them so much is the lack of flexibility and all involved in ours are looking at the options/costs to get out of it.

    I would personally look at the pros/cons of EVERY other option first!

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