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Trust Planning

Trusts are an effective way to manage wealth—be it money, investments, land, or property—for you, your family, or anyone else you wish to benefit.

Placing assets into a trust, under certain conditions, means you no longer own those assets. This can potentially reduce your Inheritance Tax liability when you pass away. Discover how using a trust can help minimise your Inheritance Tax.

In a trust arrangement, you transfer money, property, or investments to someone who will manage these assets for the benefit of another person. For example, you might set up a trust to protect savings for your children.

ROLES IN A TRUST

Understanding the key roles in any trust is crucial:

  • Trustee: The person who holds and manages the trust assets. They have the authority to buy, sell, and invest in property and are responsible for administering the trust properly
  • Beneficiary: The individual for whom the trust is established. The assets in the trust are managed for their benefit

WHAT DOES A TRUST DO?

When you transfer assets into a trust and meet certain conditions, those assets are no longer considered part of your estate. This generally means they are not included in your Inheritance Tax calculation when you die.

Assets like cash, property, or investments held in a trust are thus excluded from your estate for tax purposes.

A trust can also protect and control assets for beneficiaries, especially if they are young or vulnerable. Trustees manage and protect these assets on behalf of the beneficiary.

You can set specific rules for the trust, such as allowing beneficiaries to access the assets only when they reach a certain age, like 25.

TYPES OF TRUSTS

Different types of trusts come with varying levels of complexity and costs:

  • Bare Trust: The simplest form, where the beneficiary gets all the assets at 18 (16 in Scotland), provided they are mentally capable
  • Interest in Possession Trust: The beneficiary immediately receives income from the trust but not the assets generating the income, paying income tax on the received income
  • Discretionary Trust: Trustees have full discretion on how to distribute the trust’s assets to the beneficiaries. Commonly used by grandparents for their grandchildren
  • Accumulation Trust: Trustees can accumulate income within the trust and add it to the capital, or pay it out like in discretionary trusts
  • Mixed Trust: Combines elements of different trusts, such as having part of the trust under an interest in possession and another part under a discretionary trust
  • Trust for a Vulnerable Person: Provides special tax treatment for disabled individuals or children, reducing the tax on the trust’s income and gains
  • Non-Resident Trust: A trust where all trustees are based outside the UK, often resulting in lower or no tax on the trust’s income

CHOOSING YOUR TRUSTEES

Carefully consider who will act as your trustees when setting up a trust. Typically, people choose trusted family members or friends willing to take on this responsibility. It’s recommended to have at least two trustees but generally not more than three or four.

You might also appoint a company, like a bank or a solicitor firm, though they will charge for their services. While some choose to name the executor of their Will as the trustee, this is not a requirement.

Creating a trust involves complex legalities and potential tax implications. To avoid costly errors, seek professional advice before establishing a trust. Consult with one of our qualified financial advisers to guide you through the process.

HOW CAN WE HELP YOU?
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