What is Settled Property?
Settled property is a specific type of property that is included in an interest-in-possession trust. This arrangement allows beneficiaries, known as life tenants, to benefit from the property during their lifetime. Upon the death of the life tenant, the property typically reverts to other beneficiaries who are often defined in the trust deed.
Examples of Settled Property
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Family Home in a Trust: A family home might be placed in an interest-in-possession trust to ensure that a surviving spouse can live there for the rest of their life, after which the home passes to the children.
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Investment Portfolio: An investment portfolio can be settled property within a trust, allowing a beneficiary to receive income generated from the investments during their lifetime, with the principal amount being preserved for future beneficiaries.
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Rental Property: A rental property could be held in an interest-in-possession trust, providing rental income to a specified beneficiary during their lifetime before ultimately transferring the property to another individual or entity.
Frequently Asked Questions (FAQs)
1. What is an interest-in-possession trust?
An interest-in-possession trust is a type of trust where the beneficiary has the right to all the income generated by the trust’s assets during their lifetime.
2. Who is a life tenant?
A life tenant is a person who has the right to benefit from the settled property for the duration of their life under an interest-in-possession trust.
3. How is settled property treated for inheritance tax purposes?
The value of settled property is included in the estate of the life tenant for inheritance tax purposes, provided the property does not comprise excluded property. The inheritance tax attributable to the settled property is payable by the trustees and is shown separately in the inheritance-tax computation of the life tenant.
4. What is excluded property?
Excluded property is certain types of property which are not subject to inheritance tax, such as property located outside of the United Kingdom or certain investments.
5. Who pays the inheritance tax on settled property?
The trustees of the interest-in-possession trust are responsible for paying the inheritance tax attributable to the settled property.
6. Can settled property be excluded from a life tenant’s estate?
Typically, settled property is included in the life tenant’s estate, unless it is considered excluded property.
7. What documentation is needed to establish a trust for settled property?
The primary document needed is a trust deed, which specifies the terms of the trust, the settled property, and the beneficiaries.
8. How can I get more information about settled property and related taxes?
For more detailed guidance, consult HM Revenue’s Inheritance Tax Manual or seek advice from a qualified estate planning attorney.
9. Can the terms of an interest-in-possession trust be altered?
Depending on the terms of the trust deed, it may be possible to alter the trust through a deed of variation, provided all relevant parties agree.
10. What happens to settled property upon the death of the life tenant?
Upon the death of the life tenant, the settled property typically passes to the remaindermen (the beneficiaries who inherit after the life tenant).
Related Terms
Interest-in-Possession Trust
A type of trust where the beneficiary has a current right to the income produced by the trust assets.
Life Tenant
A person entitled to benefit from settled property during their lifetime.
Inheritance Tax
A tax on the estate of someone who has passed away, including the value of settled property.
Excluded Property
Certain types of property that are not included in the taxable estate for inheritance tax purposes.
Trust Deed
A legal document that outlines the terms, conditions, and beneficiaries of a trust.
Online References
- HM Revenue & Customs - Inheritance Tax Manual
- GOV.UK - What You Need to Know About Trusts
- Investopedia - What is an Interest-in-Possession?
Suggested Books for Further Studies
- “Trust Law: Text and Materials” by Graham Moffat
- “The Law of Trusts and Equitable Obligations” by Robert Pearce, John Stevens, and Warren Barr
- “Practical Trust Precedents” by J.E. Penner
- “Understanding Trusts and Estates” by Roger W. Andersen
- “Equity & Trusts: Text, Cases, and Materials” by Paul S. Davies and Graham Virgo
Accounting Basics: “Settled Property” Fundamentals Quiz
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