Investment Bonds and Trusts

Trusts Discussion
1

I have inherited a will trust which left residue to two children contingent on them attaining 25.
Initially a bereaved minors trust which converted to an 18-25 trust as they reached 18.

Part of the trust fund was invested in investment bonds and the regular 5% withdrawal was being paid to a beneficiary for maintenance. She is now 25 and I have been asked to look at exit charges etc. My question is, whether the regular payments of the 5% withdrawals should have been declared as exits from the trust whilst it has been an 18-25 trust or does the fact that the withdrawals attract an income tax charge mean that they won’t attract capital tax or does anyone have any other advice/thoughts on how this should be dealt with.

I feel like I may be missing something obvious so feel free to point it out!

Thanks

Victoria Motley
Forbes Solicitors

2

The withdrawals are treated as capital for iht and trust law purposes, so are potentially subject to an exit charge whenever they are made.

Simon Northcott

1 Like
3

As, under trust law, the withdrawals are capital, they will be “exits” from the trust and should be disclosed as such for IHT.

As mentioned in previous posts, if the bonds are to be encashed, consideration should be given to assenting them to the beneficiary in order to help manage/minimise the potential tax charge at that time.

Paul Saunders

4

That is what I thought. The issue here is that IHT was paid on the death of the parent. I am assuming therefore that there will be an effective rate for the 18-25 trust and that exit charges should have been applied.
Victoria Motley
Forbes Solicitors