How can a Trust protect your family and your assets?
The use of Trusts for asset protection is well established, however over the years the law has gradually introduced changes to prevent a person setting up a Trust (settlor) during their lifetime and still benefiting from the Trust without tax consequences. This means that, normally, where the settlor, or their spouse are also beneficiaries under the trust the value of the trust property remains in the settlor’s estate for inheritance tax purposes. That said, arrangements can still be made in certain circumstances where settlors can retain benefit without the tax implications just explained, for instance where the settlor retains the income from a let property placed in a Trust, that is you can have the cake and eat it.
As well as setting up Trusts to protect assets in your lifetime you can also set up Trusts in your Will to protect assets after you die.
A number of examples below illustrate how Will Trusts are useful protection.
If you are a parent of a young family you would most probably wish to delay your children’s inheritance until such age they are mature and responsible with money. If you die with no will, your children will inherit at the age of 18, when they are too young to administer large sums of money. Also you need to take special care if your child has a disability resulting in them being incapable of managing assets and would require trustees to manage their inheritance for them.
If you have a company providing the main income for the family, you may want to ensure that on your death your family can continue to benefit from the business. You may not want your company broke up by a division of shares between your beneficiaries (e.g. your children) and rather have it retained intact as one entity. In such cases a Trust can be set up for the benefit of your family who will continue to receive dividends and your company will continue under a single ownership of the trustees.
A Trust can protect assets by splitting the right to income from capital. So you can set up a Trust for your spouse or partner to benefit from the trust income during their lifetime while ensuring that your children will receive the capital on your spouse or partner’s death. The capital will also be protected from care fees, should the surviving spouse require residential care.
Trusts can also be a vehicle to save tax. The creation of a Trust as a separate legal entity with its own taxation rules can prevent the value of the assets in the Trust from forming part of your surviving spouse’s estate for inheritance tax even if your spouse is appointed as one of the beneficiaries of the trust.
Trusts can be of help not only for the wealthy settlor who can free their estate of £325,000 every 7 years (saving up to £130,000 of inheritance tax every 7 years), but also for those wanting to protect assets acquired with great effort, which no matter how modest in value, they are equally important for them and their family. An important aspect to keep in mind is that is the earlier the arrangements are made the greater the choices you have to adequately protect your family and your assets.
More information on Trust and Taxes can be found on https://www.gov.uk/trusts-taxes