Trusts can be an incredibly useful way to pass on wealth and preserve assets. Yet, there’s a common myth that they’re only valuable for very wealthy families. Read on to discover why a trust may make sense for you.
A trust is a legal arrangement that you could use to pass on assets.
The trust would be set up so that a person or people, known as the “beneficiaries”, would benefit from the assets. A trustee would manage the assets on behalf of the beneficiaries. You can choose to name more than one trustee.
You could place a range of assets in a trust, from cash and shares to property.
When you create a trust, you can set out how you want assets to be used and distributed. You could set clear rules or give the trustee the discretion to use their judgement.
There are many reasons why trusts might be a useful part of your estate plan. Here are five to consider.
1. You could pass on assets to children
If you want to leave assets to a child, a trust could be an effective way to do so.
A trust could be used to hold assets until the child reaches adulthood, at which point they could access and use them how they wish. Or you could choose for the assets to remain in trust but for the beneficiary to receive an income to support their financial security.
You may also choose to allow the trustee to use the assets in a trust to pay for certain things, such as school fees.
Additionally, a trust could be useful if you want to pass on assets to a vulnerable adult that cannot manage their own finances.
2. You can set out how you want the assets to be used
One of the benefits of using a trust is that you can have greater control over how the assets are used when compared to gifts or an inheritance.
If you have a clear idea about how and when you’d like the beneficiary to use the assets, a trust could make sense as part of your estate plan. However, you should be cautious of placing too many restrictions on the trust.
Speaking to your beneficiaries about their challenges and goals can be worthwhile and help you understand how the trust could support them.
3. A trust could keep assets within the family
Many factors outside your control could affect who ends up with the wealth you’ve built.
For instance, a relationship breakdown may mean some assets pass to the ex-spouse of your child during a divorce. Or if you passed away and your partner remarried, assets could go to the new partner’s family rather than yours.
A trust could be used to ensure some assets stay within your family even when circumstances change.
4. You can create a legacy
While it’s common to leave assets to your children and grandchildren through an inheritance, a trust could protect wealth for further generations.
For example, you could place shares in a trust, with beneficiaries receiving an income from the investments. As the shares themselves remain in the trust, they may continue to provide financial support for many generations and create a long-lasting legacy.
5. A trust could reduce an Inheritance Tax bill
If your estate could be liable for Inheritance Tax (IHT), a trust may reduce the bill your loved ones face when you pass away.
Assets placed in a trust may be considered outside of your estate when calculating IHT. In some cases, you could still benefit from assets held in a trust during your lifetime.
However, rules around trusts and IHT are complex. For example, some assets may still be considered for up to seven years after you’ve placed them in the trust when calculating IHT. So, if IHT is a reason you’re thinking about setting up a trust, advice is often important.
Contact us to create your legacy plan
There are several different types of trusts and they can be complex. Once you’ve placed assets in a trust it can be difficult, and in some cases, impossible, to take them out. So, seeking professional legal and financial advice can help ensure a trust meets your goals.
Please contact us to arrange a meeting to discuss how you could effectively pass on assets, including using trusts. We’ll work with you to create a plan that suits your needs.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning or tax planning.