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Secrets of Estate Equalisation

What is Estate Equalization?

Estate Equalization is the process where by parents can divide their wealth into two portions (which need not be equal) and then wrap everything up in a Family Trust which allows the beneficiaries to receive their legacies quicker and without tax.

The process:

It is all very easy. You must write a Last Will and Testament and then a Trust. Don’t worry you will still have access to the money and property in the Trust while you are alive. These Family Trusts only take effect when you die because they are inside your Last Will and Testament.

Why Tax Free?

A good question! Beneficiaries of Trusts are exempt from tax because what they receive from the Trust is provided to them in the form of a loan. Loans are free of tax. The loan is repaid on the death of the beneficiary.

How could a legacy be reduced?

There are many ways this can happen but the most common ones are through taxation and the payment of Nursing Home Fees. If an estate is worth more than £650,000 then the excess is taxed at 40%. So the children of a family whose parents own a moderate house, have pensions, a bit of life cover and a few pounds in the bank, can quite easily find themselves in a position where they will have an Inheritance Tax Liability. Now if the parents are ill-advised enough, they will frequently sign their home over to a child who themselves already have a home. If this is the case, and no Trust is in place, that child could be liable for Capital Gains tax or additional Income Tax. If the transaction is investigated, the parents could be found guilty of The Deliberate Deprivation of Assets.

What can be done?

Talk to me. Each of you must write a Will. Each of you must then write a Family Trust. Each of you must attend regular reviews, preferably together.

Thank you for taking the time to read this short article.

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