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Overview
A discretionary trust that provides clients with an IHT-efficient way of passing on wealth during their lifetime or on death, and can provide tax-efficient payments.
Quick facts
- For use with the Collective Investment Bond.
- Available in English and Scottish law.
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The Best Start in Life trust is a planning solution using the Discretionary trust - settlor excluded. It combines with it some of the best aspects of an Absolute trust (also known as a Bare trust).
- This is a trust where your client, the settlor, cannot be included as a beneficiary.
- The settlor chooses their trustees. They can also appoint themselves as a trustee.
- Classes of beneficiary are defined within the deed; for example, ‘children and decedents of the settlor’. Beneficiaries not covered by the classes can be added to the trust by the settlor.
- The trustees use their discretion to decide who may benefit from the trust and when.
- When the trustees wish to make a distribution to a beneficiary, use the ‘Best Start in Life deed of appointment’ to move individual policies within the bond from the Discretionary trust to a bare trust for a beneficiary. When the trustees encash these policies, the tax assessment is based on the tax position of the beneficiary and not the trustees or settlor (unless the beneficiary is the minor, unmarried child of the settlor).
- The trustees can appoint as many policies as they need at the time. Policies remain in the Discretionary trust until an appointment is made. Beneficiaries cannot demand a share of the trust property held in the Discretionary trust.
Suitability
This type of trust can be suitable for inheritance tax (IHT) planning as it moves the client’s assets outside of their estate for IHT purposes - if they survive seven years after making the gift (unless an exemption applies).
Often used by families for succession planning, the wide class of beneficiaries means spouses, along with existing and future children and grandchildren, are included automatically. If the classes of beneficiaries do not include individuals who the client would want to benefit, they can be added to the trust deed.
The ability to encash policies within the bond using the beneficiary’s rate of tax makes this solution ideal for providing for beneficiaries early in life. For example, funding school and university fees.
The settlor cannot benefit from the trust; therefore it would be unsuitable for a client who requires income or access to capital.
‘Parental settlement rules’ dictate that the settlor will be taxable for any income arising within a bare trust they created for their minor, unmarried child. For this reason, this solution will not have the same income tax benefits where the settlor is the parent of a minor beneficiary. However, there may be income tax planning benefits after the children turn 18 and your client may still make the most of the other benefits a discretionary trust brings.
Technical support
- Discretionary trust calculator - Calculate the entry, periodic and exit charges for your client’s trust.
- Taxation of discretionary trusts: Quick reference guides - Quick guides showing you how to calculate the entry, periodic and exit charges.
- Trust: Who pays the tax? A brief overview of the income tax, CGT and IHT treatment of trusts.