There is a lot of confusion about Trusts, but these are very common legal tools to assist you to preserve your Estate, both while you are alive, or after you die.
What is a Trust?
A trust is a way of managing assets (money, investments, land or buildings) for people. There are several different types of trusts.
Trusts involve:
- the ‘settlor’ – the person who puts assets into a trust
- the ‘trustee’ – the person who manages the trust
- the ‘beneficiary’ – the person who benefits from the trust
Trusts are set up for a number of reasons, including:
- to control and protect family assets
- when someone’s too young to handle their affairs
- when someone cannot handle their affairs because they’re incapacitated
- to pass on assets while you’re still alive
- to pass on assets when you die (a ‘will trust’)
- under the rules of inheritance if someone dies without a will (in England and Wales)
Will Trusts
These are Trust that are created by your Will upon your death. Broadly these fall into one of three types:-
A Property Trust, sometimes referred to as a protective property trust, can provide greater peace of mind if you own a property and wish to best protect its value for future generations.
Benefits of a Property Trust
- Guarantees who benefits from your share of the property if your surviving partner:
- Remarries after you die (marriage automatically invalidates any existing Wills)
- Writes a new Will after your death, changing their original wishes
- Can help reduce the potential impact of residential care fees on the property value for the benefit of future generations.
Who can benefit from a property trust?
- Anyone who owns property with someone else, whether married, unmarried or in a civil partnership and:
- Wants to protect the property value for specific loved ones in the future
- Wants to protect the property value from the potential future risk of residential care fees should this be required for the surviving partner.
A Flexible Life Interest Trust can help if you have significant assets or investments as well as property, and wish to protect their value for future generations.
Benefits of a Flexible Life Interest Trust
- Guarantees who benefits from cash assets and investments as well as property if your surviving partner:
- Remarries after your death (marriage automatically invalidates any existing Wills)
- Writes a new Will after your death, changing their original wishes
- Allows a nominated person to benefit from the income generated from your investments if you die, whilst protecting the capital value for future generations.
Who can benefit from a flexible life interest trust?
- Anyone who holds cash assets and investments in their sole name and:
- Wishes to take care of a nominated person such as a surviving spouse, but help protect the capital value of investments for specific loved ones in the future
- Wants to protect the value of the investments for future generations.
A Discretionary Trust allows you to appoint trustees to manage inheritance on behalf of vulnerable loved ones who require assistance.
Benefits of a Discretionary Trust
- Guarantees that vulnerable people are given assistance in the management of their inheritance
- Reduces the risk of state benefit entitlements being compromised by the receipt of inheritance
- Potentially helps unmarried couples with Inheritance Tax planning.
Who Can Benefit from a Discretionary Trust?
- Anyone who wishes to leave inheritance to:
- Loved ones who lack the mental or physical capacity to look after their own affairs
- Loved ones who have a disability and run the risk of having their state benefit entitlements compromised by the receipt of inheritance
- Beneficiaries who are in a vulnerable position. e.g. someone with learning disabilities, undergoing a divorce, struggling financially.
Click on the above names to see an example.
As each Trust is set up for an individual client the fee will vary, but our consultant will agree a fixed fee with you during your discussions.
Lifetime Trusts
This sort of Trust goes by a great many names, but essentially they all do the same job.
During your lifetime you will transfer an asset or assets from your ownership to a Trust
This sort of Trust is designed so that you stay in control of your assets. It allows you to carry on living as if nothing has changed and use those assets in the same way as before. For example, even though you have placed assets in a Trust, you can continue to live in your home and spend or save your money as you wish.
While nothing changes for you, the Trust helps to protect your wealth for future generations as it makes sure that it goes to the people you want when you and any surviving spouse or partner dies.
Assets in a Lifetime Trust are distributed almost immediately on your death and don’t need to be included in any probate process. Without the Trust in place your loved ones may have to wait for almost a year before the assets are distributed, which could result in additional worry and stress.
There are a number of pros of a Lifetime Trust, including:
- You can control what happens to your assets after your death, to keep assets within the family. Having a trust will reduce any concern that your children may misuse the money or other loss to your estate.
- You may avoid probate fees and the inheritance being challenged. The cost of the probate process and estate administration come out of the estate itself.
- Less risk of assets being reduced in circumstances like where a child gets a divorce and bankruptcy.
- May reduce tax, though legal advice should be sought on this.
- Avoiding a child’s inheritance tax liabilities. Tax after the death of a parent can be a problem for a child of the deceased. Having the assets in the trust has advantages for a child because they have the ability to access the funds but they will not form part of their estate.
- The trust can last up to 125 years. This is useful as a child does not have to get access to the funds immediately.
Please be aware:-
- You cannot set up a trust with the purpose of avoiding having to pay for your residential care.
- This is called deprivation of assets. If the local authority thinks there has been deliberate deprivation to avoid care home fees, they can contest the trust in court, so the trust will not work and the assets will be assessed for residential care home fees.
- Therefore, these trusts should not be set up where care fees are foreseeable. However, while avoiding care fees cannot be the reason for the family protection trust, it can be a benefit.
- One of the main benefits is that you and your spouse can continue to live in the house and access property in the trust fund.
- As you will be a trustee, you will have full control over things relating to the trust funds. There will be a provision that you will have a right of residence in the house while you are alive.
- Our recommendation is always that you are Trustees together with a Professional Trustee, who, as they will be familiar with Trust law, will ensure that your Trust is run correctly. There is no fee for a professional Trustee, they will only charge a fee should they be required to carry out any work on behalf of the Trust.
Full details of this Trust will be advised by your consultant during your meeting, if it is applicable to your circumstances.