Trusts are an area of estate planning that is shrouded in myths. Many people are unsure of how they can use them to their advantage and may be under the impression that they are only for people with millions in assets. However, this is not the case – no matter your assets, there are many ways to use trusts to your advantage.
Establishing a Trust
Trusts are like treasure chests – assets are locked inside for someone else’s benefit in the future. You can put assets, including money, houses, life insurance, and personal property into a trust, which will be inherited by your chosen beneficiaries in the future.
Once placed into trust, your assets are no longer yours. This means that their value will not be counted when Inheritance Tax is being calculated, and assets are not passed onto beneficiaries immediately.
Three parties establish a trust:
- The settlor – the person contributing assets to the trust. There can be two settlors when a couple contributes to a trust.
- The beneficiary – the person or multiple persons who will benefit from the trust. There may be conditions in the trust that limit how and when the beneficiaries are able to access the assets from the trust, such as age.
- The trustees – those managing the trust for the beneficiaries. The settlor can act as a trustee to maintain some control over the trust, but anyone over 18 with full mental capacity can be a trustee. It is vital that you choose the right trustee, as they have a lot of responsibility in managing the trust and assets.
You do not have to transfer all of your assets into a trust to be able to benefit from them. You can choose how much you put in trust and what type of trust you put them into.
It is a popular myth that people lose control over their assets when they are placed into a trust. Although the assets no longer belong to you when they are placed into trust, you can still maintain a level of control over them and may still be able to access the assets if needed.
Types of Trust
There are multiple different types of trust to consider when estate planning. These include:
- Family protection trusts – this form of trust allows you to retain access to all assets while you are still alive. You can choose who inherits from it, and the assets are protected from being counted against care fees.
- Protective property trusts – this trust allows you to place your home in trust, protecting it for your loved ones in the future. If you own a property with your spouse, you will become tenants in common, and the trust will protect your share of the property against high care fees and sideways disinheritance.
- Mixed trust – this type of trust combines different aspects from various other trusts so that you can tailor it to your exact needs and desires.
- Bare trusts – a simple trust which entitles the beneficiaries to inherit all assets when they turn 18.
There are many trusts available, so it can be confusing to know which one would be suitable for you and your family. Different trusts are subject to different taxes and allowances, and it can be a minefield to navigate alone. With The Planning Bee, our specialist paralegals can guide you through the process, provide expert advice and lay out your options clearly.
Reasons to Establish a Trust
Most people consider establishing a trust for inheritance tax (IHT) planning purposes. Placing assets in trust allows them to reduce the value of their estate without losing control of assets or giving tax-free gifts. However, those whose estate falls under the threshold for incurring IHT may wonder what the point of a trust would be.
There are still many benefits to establishing trusts even when they are not being used for IHT purposes:
- Maintaining control of assets – trusts allow you to maintain control of your assets and parcel them out according to your wishes. For example, for those who marry for a second time but have children from their first marriage, a trust will allow them to ensure that their new spouse and children are both taken care of.
- Reducing care fees – care fees are incredibly high in England, and if you have assets over £23,250, you will be paying care fees yourself. However, establishing a trust and placing your home in it can help to mitigate and lower these fees, as assets in trust cannot be included in care fees means assessments. However, this cannot be the sole reason for establishing a trust – this is called deprivation of assets, and your local authority may contest this if they have reason to doubt why you established your trust.
- Avoiding probate delays – probate is the process of dealing with the assets of someone who has passed away. It can be a lengthy process, but having assets in trust can speed it up. Trusts are separate from your estate, and therefore your trustees can access funds immediately to help pay IHT and probate fees.
- Protecting assets for beneficiaries – trusts can protect assets for beneficiaries and the settlor. Gifts given to beneficiaries outright can be lost in the case of bankruptcy or divorce, so keeping them in trust can help prevent them from being taken in these circumstances.
Even if you feel your Will is ironclad and will carry out your wishes exactly, it is good to look at the options and benefits that a trust can give. You may find that a trust provides your assets with an extra layer of protection and offers more peace of mind.
There are many ways to make trusts work for you. No matter your needs or assets, a trust can have significant benefits for your future beneficiaries, protecting your hard-earned assets from high care fees and expensive probate delays.
Get in touch with The Planning Bee today to find out the right option for you. Our team of paralegals cuts through the confusion and provides the best legal advice for your estate planning needs. Arrange a no-obligation consultation today to find out more.