Some of the fog has cleared around the uncertainty of the IHT analysis which applies to a trust which receives pension death benefits.
Historically, there was no clear practical guidance on the IHT treatment of the ongoing "Bypass Trust".
This has all changed, further to the updated Q&A Paper now circulated by the ABI, which was compiled in liaison with HMRC.
There was uncertainty about how the ongoing trust was to be taxed, depending on how many different pension death benefits payments were made to it, for example. The position relating to someone with several historic pension policies acquired over many years was also unclear. The new case study scenarios deal with unresolved questions in this area.
Julie Hutchison, Head of Estate Planning at Standard Life, said "It was useful being involved in these discussions with HMRC, who were willing to engage and help to provide the case studies in this new Q&A paper. Financial advisers who work closely with law firms in particular will find the 5 page analysis really useful, when dealing with advice for clients with large pension pots. Since the law changed on 6th April, and pension death benefits became inheritable wealth (sometimes subject to some tax), it is more important than ever for advisers and lawyers to think about the use of a trust to control how pension wealth is cascaded down the generations. Concerns over future re-marriage, divorce, children with special needs and the worry of inheritance at too young an age are all issues addressed by using a discretionary trust (also known as a Bypass Trust). We welcome the case studies in this Q&A paper which will shed light on this complex area for advisers working with trustees."
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