Tax tip: Using bypass trusts to maximise flexibility

It is well known that an individual cannot make an effective gift for inheritance tax purposes if that gift is a gift with reservation of benefit (GWR). In the context of a gift to a trust a GWR will arise if the settlor is or can be a potential beneficiary. The GWR treatment will not apply to a gift into a trust under which the settlor is excluded from benefit but the settlor’s spouse can benefit. If such a provision is included in a trust in order to avoid any question of conflict of interest it would make sense for any trustee appointment to the spouse to only be possible if made by at least two trustees.

This therefore is a type of planning that can give some security to a settlor in the shape of knowing that whilst he or she can’t benefit...