Planning and practicalities of Loan Trusts
Check your answers
1. It’s only withdrawals taken from the insurance bond to repay the outstanding loan to the settlor that count towards the 5% tax deferred allowance on the bond.
2. John sets up a loan trust for £100,000 but sadly dies within seven years. He received loan repayments of £23,600 which he spent. The bond was valued at £105,000 when he died. In relation to the loan trust what value is included in his estate for inheritance tax purposes?
3. Harry sets up a discretionary loan trust for £200,000. He doesn’t take any loan repayments and after seven years he decides to waive the entire loan. Which of the following statements is true?
a) Waiving the loan is a Potentially Exempt Transfer (PET)
b) Waiving the loan is a Chargeable Lifetime Transfer (CLT)
c) Waiving the loan is not a PET or CLT because it’s a loan trust
d) Waiving the loan is not a PET or CLT because it was waived after seven years
4. Sue set up an absolute loan trust for £150,000 then later topped up the bond with a gift of £50,000. Her two grandchildren are equal beneficiaries. Withdrawals of £30,000 have been taken to pay ongoing adviser fees and £20,000 loan repayments. The bond is now worth £400,000. The trustees have established there would be no tax due if the bond is surrendered. If the trust is wound up how much of a loan repayment will Sue receive and how much will each grandchild receive?
a) Sue will receive £180,000 and each grandchild will receive £110,000
b) Sue will receive £170,000 and each grandchild will receive £115,000
c) Sue will receive £130,000 and each grandchild will receive £135,000
d) Sue will receive £120,000 and each grandchild will receive £140,000
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