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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. 

    a) True 

    b) False 
 

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? 

    a) 28,600 

    b) £128,600 

    c) £100,000 

    d) £76,400
 

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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