Do you need a Trust to protect your wealth?

Determining whether you need a trust requires careful consideration of your personal and financial circumstances. In this article we explain what Trusts are, what trusts are available and how you can go about setting one up…should you feel it is the right route to go down to protect your wealth.

Under no circumstances are we suggesting you use the information within this article as advice to set up a Trust to manage your wealth. To understand whether a Trust is something you should consider, we strongly recommend speaking with a regulated financial advisor and receive the help of a professional to set up a trust if it is something you wish to utilise.

With that out of the way, let us delve into the world of trusts.

 

What is a Trust?

In the UK, trusts are a popular and powerful tool to manage, protect and redistribute wealth across generations. Different types of trusts exist in UK law, each with their own set of rules and benefits, making it important to understand your options to make the best use of them.

A trust is a legal vehicle used for managing assets on behalf of beneficiaries. It provides flexibility and control over how assets are distributed and can offer tax advantages, which make it an attractive option for many individuals.

The first type of trust is the bare or absolute trust. It is the simplest and most basic form of trust. With a bare trust, the assets are transferred to the trustee, who then holds them for the benefit of the beneficiaries. Unlike other trusts, the beneficiaries have an absolute right to both the capital and income generated by the assets in the trust from the age of 18. This trust is commonly used as a form of tax efficient inheritance planning for the benefit of minor children.

The second type of trust is an interest in possession trust. This trust provides the beneficiary the right to the income generated by the trust assets during their lifetime. The beneficiary, however, does not have the right to sell or give away those assets. The capital of the trust is usually passed on to another beneficiary of the trust after the death of the original beneficiary. Interest in possession trusts can provide significant protection to wealth against future changes in taxation. We often see these used to protect a surviving spouse, with the ultimate assets being passed to children on their death.

Thirdly, discretionary trusts are commonly used when it comes to asset protection. The management of the trust is done by a trustee, who has the discretion to distribute the trust assets amongst the beneficiaries. The beneficiaries do not have any legal right to the assets but can benefit from the use of the trust assets. This allows for flexibility in the distribution of assets to beneficiaries, whilst providing a level of asset protection and control over how these are spent.

Charitable trusts are the fourth type of trust. Such trusts have charitable purposes, such as the relief of poverty, and can provide significant tax benefits to donors. Charities are exempt from inheritance tax and may also receive gift aid as well.

 

Do you need a Trust?

The first step in determining whether a trust is right for you is to assess your assets and identify the need for protection. If you have significant assets, including property and investments, a trust can offer an effective means of protecting them against any potential legal claims. It is also useful for those who wish to protect their assets against the taxman, by minimizing inheritance tax liabilities.

Another reason you may need a trust is if you have dependents or loved ones who require financial support. A trust can offer a way of ensuring that your loved ones are taken care of, even after your death. It can provide a stable source of income, which can be used to fund education, healthcare, or other expenses. This is particularly important if you have young children or family members who are not financially independent.

In addition to the above reasons, trusts can also offer several other benefits, such as flexibility and control over how assets are distributed. With a trust, you can set specific conditions on how your assets are distributed, ensuring that they are used in the way that you intended. This is useful if you have specific wishes, such as setting aside funds for charity or for the education of grandchildren.

The decision to create a trust is a personal one and can depend on many factors. It is important to consider your personal circumstances and financial goals carefully. You should also consult with a legal or financial professional, who can guide you through the process and ensure that your wishes are properly executed.

 

How to set up a trust

Here are some key steps to setting up a trust in the UK:

1. Define the purpose of the trust: Before establishing a trust, it is important to define the purpose of the trust. This will involve determining the beneficiaries of the trust, the assets that will be held in trust, and the overall objectives of the trust. A reputable advisor, such as a lawyer or financial advisor, can assist with this process.

 

2. Select trustees: The trustees are responsible for managing the assets held in trust for the benefit of the beneficiaries. In selecting trustees, it is important to choose individuals or a company with the appropriate expertise and experience. Many people choose to appoint a professional trustee such as a lawyer.

 

3. Create a trust deed: A trust deed is a legal document that sets out the terms of the trust, including the objectives of the trust, the identity of the settlor, the identity of the trustees, and the beneficiaries of the trust. The trust deed must be signed and dated by all parties involved.

 

4. Transfer assets into the trust: Once the trust has been established and the trustee has been appointed, the settlor will need to transfer their assets into the trust. This may involve transferring ownership of property, shares, or other assets to the trustee. Individuals should be mindful of any tax implications of transferring assets into a trust. It is always important to obtain appropriate professional advice before doing so.

 

5. Maintain the trust: The trustees are responsible for managing the assets held in trust and ensuring they are used in accordance with the wishes of the settlor. The trustee must also keep accurate records of all the transactions relating to the trust and report to the beneficiaries on a regular basis.

 

6. Seek advice: It is important to seek advice from a professional advisor to ensure that all legal and tax implications of the trust are fully understood. This may include advice on inheritance tax, capital gains tax and other relevant taxes.

 

Making the right decisions

Setting up a trust in the UK can offer a range of benefits to those wishing to protect their assets or pass them on to future generations. The decision to create a trust should be based on careful consideration of your personal and financial circumstances. The various types of trusts available allow individuals and families to tailor the trust structure to their specific needs and requirements. It is important to choose the right type of trust for your goals, so you can enjoy the benefits of a trust and achieve greater peace of mind.

We strongly recommend you work with trained professionals and seek to ensure that your assets are protected and managed effectively.

If you would like to discuss trusts in more detail, or to explore the best route to take in protecting your wealth in the future, please do not hesitate to contact us for more information.