The Bear Trap!


Helen came in to see me to check through her Inheritance Tax position a few weeks ago.

There were a few small things we could do but mostly her affairs were in order.

There is however a problem with an overseas trust

Now whereas most of us would love to be the residual beneficiary of any trust to the tune of nearly
£1million for an already wealthy 79 year old (and her family) this is a bit of a bear trap. 
Say the trust’s life tenant dies in 2 years and Helen dies a week after, Helen's estate will be expanded
by £1million and HMRC will collect an extra £400,000 in Inheritance Tax before anything can
be passed on to the descendants.

Normally, we would amend a UK will trust shortly after death, but this cannot be done in this
case for various reasons. I checked with my legal advisers that it is possible to assign the legacy
from this end thereby avoiding the potential Inheritance Tax trap, only to discover at the last minute
that assigning a legacy from an overseas trust is treated as a Capital Gain!

I am still searching for an answer to this one.