Commentary

I3.754 'Double trust' or 'lifetime debt' schemes

IHT, trusts and estates

I3.754 'Double trust' or 'lifetime debt' schemes

I3.754 'Double trust' or 'lifetime debt' schemes

Typical 'double trust' or 'lifetime debt' arrangements rely upon the creation of a debt which is given to the donee and is deductible against the value of the property in the donor's estate. (One of the more straightforward types of scheme is referred to in the narrative on the relief for a double charge to IHT at I3.746.) In its most basic form, a typical scheme involves the donor selling the property to the trustees of a settlement under which he has an interest in possession, the consideration being left outstanding by way of loan (interest free and typically repayable only at a future date such as the donor's death) charged on the property. The donor then gives the benefit of the loan away to the trustees of a second trust under which the beneficiaries include the intended donee or donees. The result is that:

  1.  

    •     the donor has made a potentially exempt transfer of an amount equivalent in value to the property

  2.  

    •     he remains able to continue occupying the property under the terms of the settlement to which it has been sold without giving rise to a reservation of benefit problem, and

  3.  

    •     although on the donor's death he will be treated as beneficially entitled to the property1, the debt due to the trustees of the second settlement will be deductible from its value in his estate2

Again, there are a number of variations on the basic theme. Several iterations of the

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