The use of trusts in the UK has exploded in recent years, with many people utilising them to protect their assets and safeguard money for their families. As more people are looking to use trusts for their estate planning needs, here are five things to consider when establishing a trust.
1. The Parties Involved
There are several parties involved when setting up a trust. The person contributing their assets into a trust is known as the settlor, who then lays out specific rules in the trust deed that detail how the assets should be used in the future.
When establishing a trust, the settlor must choose a trustee to manage the assets that they place into it. The trustee then becomes the legal owner of the assets and looks after them on behalf of the beneficiaries, who will access them at a later time. It is vital to select an appropriate trustee to manage a trust, as it is essential that they are correctly handled. In some cases, the settlor can also be the trustee, which allows them to retain some control over their assets.
The final people involved in the establishment of a trust are the beneficiaries. These are the people who the settlor wants to access the assets held in the trust. There can be many beneficiaries of a trust, as settlors may choose their children or grandchildren. Depending on the type of trust, the trustees may distribute assets to the beneficiaries per the rules laid out by the settlor.
2. The Cost
Setting up a trust is not a cheap endeavour. It can cost hundreds of pounds to establish one, so consider the price when looking for the right trust for you. Despite the steep initial cost, trusts can pay for themselves several times over in the future for both your estate and your beneficiaries by protecting your assets and potentially reducing the amount of Inheritance Tax (IHT) payable.
Using a professional to draw up a trust may be pricey, but it can help to avoid costly mistakes that may arise in the future. Although you can draw up the paperwork for a trust yourself, doing so comes with many risks. If there is a mistake, the trust could be found invalid, meaning your beneficiaries will not be able to access what you leave them.
The cost of trusts can also increase if you employ a professional trustee to manage your trust. Although this would ensure that your trust is managed well, it could impact the overall value of your trust, as the fees for professional trustees can be high.
3. Types of Trust
There are many types of trusts to consider. Each has different rules and benefits, so be sure to talk through your options with a legal professional before deciding.
Common types of trusts include:
- Bare Trusts – the simplest form of trust, bare trusts hold assets for younger beneficiaries and can be used to pass them on when they turn 18 or another specified age.
- Protective Property Trusts – settlors place their home into this form of trust which protects it for future beneficiaries. It also protects the home against sideways disinheritance and high care fees.
- Family Protection Trusts – this trust allows the settlor to retain access to all of their assets whilst protecting them from issues such as a prolonged probate process and high care fees. Family protection trusts also give the settlor a choice to disinherit children.
No matter your needs, there is a trust right for you. The experts at The Planning Bee can walk you through your options and help you select the right choice for you and your family.
4. Assets To Include
If you are considering establishing a trust, it is important to have an idea of what assets you want to include within it. Different assets that you may choose to include could be:
- Property and land
- Life insurance
- Financial assets, such as shares
- Assets such as paintings or jewellery (also known as chattels)
- Vehicles
Although it is possible to leave these assets behind in a Will, many people choose to safeguard them within a trust for many reasons. One reason is IHT – your loved ones may have to pay much more IHT on your estate if you do not use trusts and instead rely on a Will.
5. Reasons for Establishing a Trust
There are several reasons to consider establishing a trust, each of which has its own benefits:
- Control – many people place their assets into a trust to control where their possessions go when they pass away. For example, for someone who has been married twice but has children from their first marriage, placing assets into a trust reduces the chance of sideways disinheritance for their children whilst still ensuring that their second spouse is accounted for.
- Inheritance Tax – trusts are a useful tool to reduce the amount of IHT payable on your estate. Seven years after you place assets into a trust that you cannot benefit from, anything held within that trust will not be counted as your estate and, therefore, will not be liable for IHT.
- Protection – many people use trusts to help protect their beneficiaries. Beneficiaries can lose assets given as gifts or left in Wills, but when they are held in a trust, it is less likely to be lost in cases of divorce or bankruptcy.
No matter your reason for establishing a trust, having one in place can be highly beneficial for both yourself and your loved ones. Trusts offer a high level of protection against many issues whilst also letting you retain some level of access to the assets included.
Conclusion
There are many things to consider when you are looking into establishing a trust, but these five things are a good starting point. Knowing who you want to involve within your trust, what you want to include, what type might work best, and how much it may cost provides a good benchmark for establishing the best trust for you.
Do not hesitate to contact The Planning Bee to learn more about trusts and estate planning. Our expert paralegals will help you decide what trust is right for you and how your beneficiaries will benefit.