Setting up a trust is also one way of addressing concerns about family members squandering the money.
A loan trust is one of three trusts to be considered, Cameron says.
Loan trusts are for clients who want to do IHT planning but cannot give up access to their capital. Using a loan trust allows clients access to their original capital at any point and in any amount, but the growth will not be included in their estate for IHT purposes.
For the avoidance of doubt, the outstanding loan remains in the settlor’s/donor’s estate for IHT purposes. A typical scenario is where this is the client’s first introduction to IHT planning. They may not like the idea of giving away, outright, all of their nest egg, so using a loan trust allows them to retain control and gives them access to their original capital.
A standard gift trust is where the settlor does not need access to the money, but also wants to keep control of it and decide when it gets paid to the beneficiary.
A discounted gift trust is a trust-based IHT planning arrangement for those individuals who wish to undertake IHT planning but who are unable to lose full access to their investment. In a DGT, access is typically provided by means of a series of preset capital payments to the investor who will be the settlor of the trust.
Stocks and shares can also be put into trust or assigned to family members.
Other options
>I don’t think there is a best way to reduce your IHT bill, as it come down to individuals’ needs and objectives.--Les Cameron
Aside from gifts, another way to reduce the IHT bill is to use the business property relief vehicle, so you can buy certain types of assets that do not get included in the estate.
For example, if you buy company shares that are on the Aim market and hold them for two years, they are not in the estate anymore. Saying that, investing in these types of companies comes with a higher risk.
Cameron says one of the most underused approaches in IHT planning is "putting money into your child's pension, because everybody thinks you can only put £3,600 in your child’s pension and that is true if your child is only 10 years old".
He adds: "If your child is 45 and is a higher rate taxpayer earning £60,000 a year, you can put £60,000 in the pension and that will be treated as a gift, and out of your estate. The good thing about that is you would be gaining an IHT benefit by reducing your estate.
