Many people have heard the term “Trust” but do not necessarily know what it means or why it might be useful for them. There is also a misconception that Trusts are used only by the very wealthy which is simply not the case.
Creating a Trust
A Trust can be created via your Will (to come into effect on your death) or during your lifetime and can be as simple or as complicated as required for the circumstances.
A Trust is an arrangement by which you would pass assets (which could include, cash, shares or property) to people you specifically appoint, called Trustees, to look after in accordance with the terms of a Trust Deed. The Trust Deed sets out how these assets should be dealt with and who you would want to have benefit from the assets held in the Trust, in what proportions and when. The people that can benefit from the Trust are called Beneficiaries.
Advantages of a Trust
Delaying inheritance to a certain age
You may want to make a gift to children who are too young or who you feel are too frivolous to receive the assets outright. By putting the assets in a Trust you can state the age that the beneficiaries should receive the funds and make provisions for payments to be made for their benefit prior to them reaching that age should your Trustees think it appropriate.
To provide for vulnerable or disabled people
You may want to provide for people who may not be able to deal with the funds themselves, such as people who suffer from mental incapacity or problems such as drink, drugs or gambling addictions. A Trust is a good way of ring-fencing funds which can be used in an appropriate manner for the individual, to be controlled and looked after by your Trustees.
Also, in making a gift into a Trust rather than outright, the gift should not affect the individual’s entitlement to means tested benefits.
To protect family wealth
You may want to pass wealth on to the next generation but have concerns about what would happen to this should the recipients face divorce or bankruptcy, or you may be concerned about the effect of marriage on the recipient. A gift into a Trust is a way of protecting assets from such eventualities and allowing you to retain a certain element of control.
Inheritance tax planning
A Trust can be a useful vehicle for Inheritance Tax planning, whereby you are seeking to reduce the value of your estate by passing wealth on but are not comfortable making outright gifts to the individuals you want to benefit.
Care fee planning
Trusts can be used to protect assets, such as your home, from being used to fund potential future residential or nursing home fees.
To split the benefit of a particular asset
You may want an individual to receive the income from a particular asset but for the actual asset to eventually pass to another individual.
Equally, with a house for example, you may want to grant one individual the right to live there for a certain period but ultimately want your share of the house to pass to certain other individuals. These objectives can be achieved through a Trust arrangement.
How Nelsons can help
Catherine McCannah is a Partner in our expert Wills, Trusts and Probate team.
Whether a Trust is appropriate for you and, if so, what kind of Trust you should use depends entirely on your personal and financial circumstances and what it is you want to achieve. From this point of view it is imperative that you seek professional specialist legal advice on this topic.
For more advice or to comment on this article, please contact Catherine or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.