Trusts can be set up for a number of purposes and at different times in a person’s life or indeed on death where provisions are included in a will. Trusts are commonly used as part of estate planning and can be very effective for protecting people and/or protecting assets.
A trust can:
provide funding for a specific purpose – for example, you might want to pay someone’s educations fees
reduce Inheritance Tax (IHT), thereby enabling more of your estate to go to who you choose rather than HMRC
allow funds or assets to be managed on behalf of someone who may need additional help if you consider that the person is unable to manage personally
provide for spouses, or children from previous relationships
ring fence assets from the consequences of a relationship breakdown
protect important family assets for future generations
Why would I want to set up a trust?
To keep control
A trust lets you keep control over the assets you placed in it. For example, if a person re-marries and has children from their first marriage, they might want to ensure their second spouse is taken care of whilst they are alive, and a trust would enable them to pass their money to their children after the surviving spouse dies.
For protection
Trusts can offer a means of protecting assets for a beneficiary. An outright gift given to a beneficiary who might divorce or become bankrupt could be lost.
But if a gift is made into a trust whereby the beneficiary has no right to the income or capital, then that gift is much less likely to be taken into account in the above situations.
To save IHT
Trusts offer a useful way to save IHT without having to make an outright gift to another person. If you place assets into a trust to which you cannot benefit, after seven years the assets will fall outside your estate for IHT purposes. Any growth on the assets will immediately be outside your estate.
To avoid probate delays
Usually, after you die any IHT and probate fees must be paid before your assets can be distributed in line with your Will. However, the executors of your Will can’t access your assets until probate is granted – so they must find the money from elsewhere. If you have set up a trust your trustees could immediately access any money held in it and use the money to pay the IHT and probate fees and distribute to beneficiaries.
