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Can trusts help me avoid inheritance tax?
By Rebecca Atkinson
"I have recently taken out some level-term life 
insurance. Following advice in the financial pages, I chose to put it in trust. I understand that this means should I die, the money would be more readily available to my family, 
as it would not be included within my estate.
I was told it was a simple thing to set this up. However, when the papers about this arrived the company “strongly advised” me to seek professional advice before I signed, due to “a new tax regime as a result of changes made in the 2006 Budget”.
As I was unsure who to ask, or what the implications were, the papers are just sitting on my desk now. I don't know whether to proceed or not. I would value any advice you can offer."
Ask The Professionals: Philip Pearson, a partner at P&P Invest in Southampton and investment portfolio specialist, says:
Trusts are a very useful tool in estate planning and ensure that the right people get the right money at the right time. It's important, however, that you establish the correct trust 
to meet your financial needs upon your death.
Broadly speaking, there are two types of trusts available to you, known commonly as absolute and discretionary trusts. An absolute trust ensures that a named individual will have the legal right to the trust fund from age 18.
A discretionary trust provides a far greater degree of flexibility and enables the trustees to apportion the trust fund to beneficiaries at their discretion. This flexibility, however, involves a higher degree of 
administration, with the potential risk that the trustees will be taxed on income or capital gains made within the trust.
If you're arranging the life 
insurance to protect a young family, it's important to appoint trustees you have total faith in and who understand your wishes, to ensure that they use the capital appropriately while your children are dependants and distribute the fund when they reach 18.
This can be a complex area for financial planning and therefore it makes sense to seek professional 
advice from a solicitor or a suitably qualified independent financial 
adviser before completing the documentation.
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