Accountant warns clients could lose thousands over redundant discretionary trust clauses

An accountant has warned that many couples and their loved ones could lose out when it comes to inheritance tax because of now-redundant discretionary trust clauses.

The clauses are now no longer useful according to Craig Hughes, private client account director at Menzies, because of the soon to be introduced main residence nil-rate band.

The allowance is to be introduced gradually from April 2017 and will eventually be worth up to an extra £175,000 per person by 2020/21.

Craig Hughes told the Financial Times: “Historically, many married couples chose to include a clause allowing the creation of a discretionary trust for their children or grandchildren upon first death to use their IHT nil-rate band, otherwise it was lost.

“However, when the law changed in 2007 allowing married couples and civil partners to transfer their IHT nil-rate band allowance to the surviving spouse or partner, this clause was rendered redundant in most cases.

Craig also mentions that the changes mean it’s another reason to remind clients to update their inheritance plans regularly.

He continued: “The family home allowance will be gradually lost if the assets being passed are valued at more than £2m, so a person who wishes to create a discretionary trust under these circumstances would be no worse off.”

“For the adviser, the introduction of the new family home allowance is a classic door opener; another opportunity to remind clients about the need to review their IHT planning regularly.”

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