Mark McLaughlin highlights a potential beartrap when setting up a trust for family members as part of their lifetime inheritance tax planning.
Many individuals set up trusts for family members as part of their lifetime inheritance tax (IHT) planning. The intention is that assets gifted into trust fall outside their estate and the individual (the ‘settlor’) escapes IHT completely if they survive at least seven years following the gift.
Not so fast!
This might seem straightforward. However, the ‘gifts with reservation’ (GWR) anti-avoidance rules are a potential beartrap. The GWR rules are designed to prevent ‘cake and eat it’ situations whereby an individual makes a lifetime gift of an asset (which they hope to survive by at least seven years, so that the gift becomes an IHT exempt transfer) but continues to have the use or enjoyment
