Ned sets up an arrangement where some of his property is managed by a trustee for the benefit of beneficiaries. ned reserves the ability to terminate the agreement at any time. if he does not, all property is treated as a gift to beneficiaries. what kind of arrangement does this describe?
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A gift with reservation is a gift which is not fully given away. Where gifts with reservation were made on or after 18 March 1986, you can include the assets as part of your estate but there is no 7 year limit as there is for outright gifts. A gift may begin as a gift with reservation but some time later the reservation may cease.
In order for a gift to be effective for exemption from Inheritance Tax, the person receiving the gift must get the full benefit of the gift to the total exclusion of the donor. Otherwise, the gift is not a gift for Inheritance Tax purposes.
For example, if you give your house to your child but continue to live there rent free, that would be a gift with reservation.
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