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What can a Trust do for me?

What can a Trust do for me?

Good estate planning involves taking steps to ensure your estate is inherited by the people of your choice, in the manner and at the time you wish. Above all, it is about control; the desire to avoid certain outcomes whilst promoting others. A secondary factor is tax. If you make a gift and live seven years afterwards, its value is not added back to your estate on death, which gives a positive result for inheritance tax (IHT).

Trusts can be created in your lifetime as well as being written into a Will. The trustees own property which is held for the benefit of others, in line with the particular terms of the trust deed.
Rather than making a direct gift to a beneficiary, in which case there is no control over when or how the funds are accessed, those funds can be gifted to a trust. Assuming the amount involved does not exceed the current nil rate band for the tax year no immediate IHT bill arises.

The advantage is that the trustees control when funds are made available. Funds can be paid gradually over many years and could be held for the next generation not yet born.

Trusts can also be used with life policies to ensure the proceeds are paid out more speedily in the event of death, as well as those payments falling outside the estate of the individual for IHT in many cases.

Those in partnerships and owner-managed businesses may also find that their succession planning strategy could benefit from a trust being used with life policies.

Life interest Trusts

This is a trust that can be established either during your lifetime or by your Will. It is a trust that is established to provide the beneficiary with the right to receive the income from the trust during their lifetime and on their death, the trust passes to other named beneficiaries.
A common use for this type of trust is to hold a property.  The life tenant would be entitled to live in the property during their lifetime or receive the rental income from it is entitled to either receive the rental income from it or to live in the property if they wish.

This type of trust may be useful in the following scenarios:
a. To protect your property if your spouse could remarries and the property could be inherited by their new family

b. Second marriages and step-children.  This type of trust allows you to provide for your new spouse but ultimately allow your assets pass to your own children

c. Future care fees funding. This could allow you to protect some or all of your property to ensure that your children will receive some inheritance in due course, whilst potentially providing you with a rental income to help fund care fees

d. Keeping the family business in the family.  Shares could be held in the trust

Discretionary Trusts

Discretionary trusts are a more flexible way of dealing with the unknown in terms of the destination of assets under a Will.

A discretionary trust in a Will allows your assets to be placed into a trust for the benefit of a group of individuals and your trustees will make decisions as to the use of the funds in the trust, potentially for many years and considering all the changing circumstances of the beneficiaries.

This type of trust is also a protective trust.  You may have children or grandchildren with special needs and who cannot manage a large inheritance.  The trustees will ensure that monies are available for that beneficiary without affecting their means tested benefits.

There is also a protection angle here. Many families may have had experience of dealing with someone who has an addiction of some kind or who is going through a difficult period in their lives, ie bankruptcy or a divorce; and a large inheritance may make a person vulnerable to outside influence which may potentially harm them.  Again, your trustees can purchase items required by the beneficiary rather than pay out funds directly, which balances the desire to support the individual whilst not distributing cash which would inevitably be used for something else.  Your trustees will take your place in protecting the monies in the funds whilst using them wisely for your beneficiaries.

The flexibility of this type of trust is one of its most attractive features. Weighed against all these benefits, there are professional fees involved in creating and running the trust and its investments, but for many families who want to secure these benefits to protect their wealth, it is a price well worth paying.

Please do not hesitate to contact a member of our Private Client team if you would like to discuss Trusts.

  • Jennifer Bartram

    Jennifer Bartram

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  • Richard Watson

    Richard Watson

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  • Darren Norgate

    Darren Norgate

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    Sharon Richardson

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    Belinda Poulter

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    Vaughan Lindley

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    Orlando Bridgeman

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    Ellie Robinson

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