A growing number of people have started gifting money to their loved ones in an attempt to rapidly reduce the value of their estate for inheritance tax purposes.

For those not ready to gift wealth away immediately, but want to start inheritance tax planning now,
here’s how a trust can help.

Gifting wealth to reduce IHT

Inheritance tax (IHT) is no longer just a concern for the wealthy. With rising house prices, frozen IHT allowances, and changes to the IHT treatment of pensions from 6 April 2027, many more families
are set to be affected.

By gifting wealth to loved ones, you can help reduce your potential IHT liability. Some gifts are ‘exempt’ and the IHT saving is immediate. For all other gifts, you will need to survive a period of seven years for the gift to be excluded from the value of your estate. Why making an outright gift might not be the answer
Making an outright gift is a great way to see loved ones benefit from your wealth immediately. For example, giving £50,000 to a grandchild to help them buy their first home will bring great joy and reward.

However, what if you aren’t ready to gift your wealth away immediately:

• Perhaps you don’t yet know how much money you will need in future years.
• You may still be undecided over who you want to benefit from your wealth and when.
• Perhaps you want more control over how your wealth is spent, for example, you may want it to be used for school fees.
• The timing might not be quite right either, perhaps your grandchildren are still very young, or your child is going through a separation.

You need to be certain before making any outright gifts. You won’t be able to recover the gift if you change your mind.

So how can you gift money but still benefit from flexibility, access, and IHT efficiency?

Making a gift into trust can solve a lot of these concerns but can still start the seven-year IHT clock immediately.

Here’s how they work:

Any money you gift into trust becomes the property of the trust and no longer belongs to you. The new legal owners are the trustees, who you choose to run the trust. Money is held in a trust fund for your chosen beneficiaries.

Depending on the type of trust you choose, you can either name your beneficiaries at outset or build in flexibility. You may also be able to access some or all the trust fund in the future. Today’s modern trusts are designed to fit around your lifestyle, and deal with the ‘what if I need the money in the future’ scenario. For example, the aptly named Quilter Lifestyle Trust allows you to make a gift of your money today, with the flexibility to access some of the trust fund at selected dates in the future.

This gives confidence to those wanting to reduce the value of their estate but are uncertain about their future financial needs. A trust can also help speed up the process of passing wealth to your beneficiaries when you pass away. As the money you place in a trust no longer ‘belongs’ to you, there is no need for the trustees to wait for probate before that wealth can be passed on to your chosen beneficiaries.

Remove complexity by using professionals

Trust planning can be complex, and it’s important you speak to your financial adviser. Your financial adviser can ensure you select the most appropriate trust for your needs and can help set up the trust by completing the trust deed. They will also be able to discuss any additional costs with you.

If you are concerned about asking family members or friends to take on the responsibility of being a trustee, you can select a professional trustee to run the trust for you. This will provide peace of mind that all the reporting and tax obligations are taken care of.

Start the conversation with Sirius today

Gifting money into trust is a great way to control the distribution of your wealth to your loved ones.
It can help remove some of the drawbacks of outright gifting by giving you flexibility and access (depending on the trust chosen) while still benefiting from the seven-year clock starting now.

Speak to your adviser for more information on whether trust planning could be right for you.