Trusts are set up for a number of reasons including controlling and protecting family assets, passing on assets while you’re alive, and when somebody is incapacitated or too young to handle their affairs.
A trust is a legal arrangement where you gift cash, property or investments to a separate entity (the trust). One who gifts assets is the Settlor, the trustees then oversee the management of the assets for the benefit of a third party or parties.
Exploring trusts and other estate planning options enables you to detail your wishes regarding how you would like your estate to be managed so that your legacy can be distributed in a tax-efficient way.
There are many different types of trusts that can be explored, including;
- Bare trust – This gives everything to the beneficiary straight away as long as they’re over 18.
- Interest in possession trust – The beneficiary can access income straight away, but not the cash, property or investments that generate the income. Income tax must be paid on this.
- Discretionary trust – Trustee has absolute power to decide how assets are distributed.
- Mixed trust – Combines elements of different trusts.
- Trust for a vulnerable person – Where the beneficiary is a vulnerable person (e.g an orphaned minor or someone with a disability), usually less tax to pay.
- Non-resident trust – Trustees are residents outside the UK.
One of the main benefits of a trust is that, should you elect to act as trustee, you would continue to maintain control over the assets gifted whilst your estate’s exposure to inheritance tax is reduced as, after seven years, the gift is out of the Settlor’s estate completely.
Assets transferred into a trust are no longer considered as belonging to the Settlor, so they are taxed according the rules governing the trustee.
Many people would prefer to provide for a beneficiary through a trust as opposed to passing assets to them outright. Thus those people can make more complex arrangements through the use of a trust. This could involve a source of income for a beneficiary for life, or providing education for children but not allowing them to access funds until they are older.
Within the trust, you can specify when the assets will be distributed, which is a good option if you have a sizable estate that you want to transfer slowly to your beneficiaries.
Which is why it is always best to seek specialist advice, contact us today to find out how we can protect your wealth and assets.