MONEY MATTERS: Is an 18 to 25 trust right for you?

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One of the strongest criticisms of the alignment of the IHT treatment of trusts that was contained in the Finance Bill 2006, was that in order to escape the relevant property regime, a trust had to provide an absolute entitlement at age 18.

Many felt that this age was too young for many beneficiaries to receive large sums of money.

The Finance Act 2006 was eventually amended to include a compromise allowing certain trusts, known as 18 to 25 trusts, to be exempt from periodic charges and only subject to an exit charge.

As 18 to 25 trusts must be created on death (with the exception of certain accumulation and maintenance trusts in existence before 22 March 2006, and trusts under the Criminal Compensation Scheme) the transfer will be a chargeable transfer for IHT.

The main requirements for a trust to be an 18 to 25 trust are:

l The trust is created for a minor beneficiary on the death of a parent.

l The trust can only be created by will or by deed of variation. Statutory trusts created on intestacy cannot be 18-25 trusts.

l The beneficiary must become absolutely entitled to both income and capital at an age not exceeding 25.

Accumulation and maintenance trusts created before 22 March 2006 which provided the beneficiary with an absolute entitlement to capital at an age between 18 and 25 or had its terms amended to meet this requirement before 6 April 2008, will also be treated as an 18 to 25 trust.

An exit charge is applied at the time the beneficiary becomes absolutely entitled to the trust property or it is applied to or for their benefit.

Should you feel that this arrangement may be appropriate for your planning, please feel free to contact me.