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The Problems of Giving It Away

Posted: Friday, 4 January 2019 @ 13:43

There was quite an interesting piece in the Mail on Sunday about the Davidsons who are embroiled in a legal dispute with their children having given away their South of France villa to them. There are also other legal issues involving a £600m trust fund.

Mr Davidson, 84 describes the nub of the problem by saying "People give away money in their lifetimes to avoid inheritance tax."  

There are a number of lessons to be drawn.

First of all, yes the level of inheritance tax can be prohibitive in whatever jurisdiction you operate(40% above £650k for married couples in England & Wales) but in trying to avoid IHT be very careful how you operate as the law of unintended consequences can come into play.

If you are looking to avoid IHT, yes gifting it to children is an option but one needs to survive more than 7 years to avoid it being part of your estate for IHT purposes. As the Davidsons have found out, once you gift something you lose control and this can be a bad thing.

Trust funds are a sensible option if the money justifies it but if you go down this route you cannot do it DIY in terms of the trust document or in terms of trustees. You need to minimise legal pitfalls and crucially retain ultimate control.

Selection of trustees is pivotal. Law firms do themselves a disservice by over charging clients and the key issue for the client is to secure that professional input at a reasonable price. In my experience many individuals fail - Either they are charged too much or they try to DIY. This can lead to an outcome which is what the Davidsons had.