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Inside View: Trust eases pain for will's beneficiaries.

Byline: By Mike Walker

IF YOU had died last night leaving an estate of more than pounds 275,000, essentially Inheritance Tax will be payable on the excess at 40 per cent.

So, on an estate of pounds 500,000, that would be pounds 90,000 due to the Government - unless you leave it to your spouse or charity or some other exempt beneficiary.

So what are the options? If you make gifts during your lifetime this could reduce your IHT.

The gift known as a Potentially Exempt Transfer will normally be free from IHT providing you live for seven years after you make the gift.

However, often a donor would like to make a gift, but requires the income from the capital.

This has led to the development of Discounted Gift & Income Plans.

These schemes involve investing in a life insurance bond which you request tobe issued in the name of the Trustees of the DG&I Trust.

The trust will provide you with a regular fixed income, which is agreed at the outset, and so long as you survive seven years from the start of the plan then the gift will be outside your estate for IHT.

Also any growth on the bond will be outside the estate.

A further advantage is that should you die within the seven years the investment will be reduced by a discount factor for IHT purposes. The factor depends on age and sex. Non-smoker Lillian, aged 70, has pounds 250,000 potentially subject to IHT at 40 per cent. Clerical Medical states that for an investment of pounds 250,000 in DG&I, with Lilian drawing an income of pounds 1,000 per month, the value of the discount would be pounds 128,500, a potential saving of IHT of pounds 51,400 at the outset.

Assuming Lillian survives seven years the IHT liability would be reduced to nil

If you would like a booklet explaining the Discounted Gift & Income Trust call Mike Walker on 01902 425239 at Howard Wright (Life & Pension Consultants) Ltd who are authorised and regulated by the FSA
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Title Annotation:Business
Publication:Birmingham Mail (England)
Date:Oct 3, 2005
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