Trusts are a powerful and versatile tool in financial planning, yet their complexity often leads to misunderstandings. This introduction aims to demystify trusts, explaining their nature, purpose, and the roles of those involved, as well as highlighting their various types and benefits.
What is a Trust? A trust is a fiduciary arrangement where assets are placed under the stewardship of trustees for the benefit of designated beneficiaries. It serves as a secure mechanism for asset management, ensuring that even after the settlor’s demise, the assets are managed and distributed according to their wishes.
1. The Settlor: This is the individual who creates the trust, transferring assets into it.
2. The Trustees: These are the appointed individuals responsible for managing the trust. They must be over 18 and mentally capable. Often, the settlor also acts as a trustee to maintain some control.
3. The Beneficiaries: They are the ultimate recipients of the trust’s benefits, which could range from financial distributions to the use of property. Trustees may have discretion in how and when to distribute these benefits.
The Mechanics and Types of Trusts
How Does a Trust Work?
Upon transferring assets into a trust, the trustees legally own them, holding and managing them for the benefit of the beneficiaries. This arrangement provides security and ensures continuity in asset management and distribution.
The Strategic Advantages of Trusts
1. Control Maintenance: Trusts enable you to manage how your assets are used and distributed, crucial in complex family situations like second marriages with children from a previous relationship.
2. Asset Protection: They provide a safeguard for assets against potential loss due to beneficiaries’ divorce or bankruptcy, as the assets in a trust are not considered the absolute property of the beneficiaries.
3. Inheritance Tax Efficiency: Trusts can be a strategic tool for reducing inheritance tax liabilities, especially when assets are placed in a trust where the settlor has no benefit.
4. Probate Delays Avoidance: Trusts allow for quicker access to assets after the settlor’s death, aiding in settling inheritance taxes and probate fees without the delays of probate.
Why Create a Trust?
There are a number of benefits to creating a trust to protect your wealth, from the financial benefits to the peace of mind you’ll have knowing that your assets are in safe hands. Here are just some of the advantages to creating a trust:
Avoid unnecessary fees and taxes. Inheritance Tax (IHT), Capital Gains Tax, and even certain forms of income tax can be minimised using trusts.
Organise your estate. Ensure that each of your family members are loved ones are provided for, with clear instructions on how your trust should be distributed.
Protect your inheritance, even after your estate is administered. A trust can protect your loved ones’ inheritance from life events like bankruptcy and divorce.
Avoid delays. Grant of probate can cause delays in the administration of your estate. Having assets held in trust can speed up the process, meaning your loved ones will be provided for more quickly in the event of your death, or incapacitation.
Take Advice Before Establishing a Trust
The Importance of Professional Guidance:
Before setting up a trust, it is crucial to seek advice to ensure you select the most suitable type of trust for your needs and avoid paying too much tax. With our expertise and wide range of professional connections we will ensure that your trust is set up correctly and effectively.
