Trusts are often regarded as the preserve of the wealthy. Fortunately however, this is not the case.

I have previously suggested that people with assets should make a will rather than rely on the laws of intestacy and the same may be said about trusts. With the above in mind it might be worth considering the following:

What is a trust? In its simplest terms a trust is a way of arranging property for the benefit of others but without necessarily giving them full control over it.

When and why can trusts be used?

To reduce Income Tax
An individual maybe a higher/additional rate tax payer. By placing assets in a trust for the family (excluding the individal and spouse), income could be taxed at the basic rate on other family members. There are anti-avoidance rules to prevent this strategy being used where beneficiaries are the individuals.

To reduce Inheritance Tax payable
When an individual dies their estate is subject to IHT, and beneficiaries  could lose up to 40% of their inheritance above what is called the nil rate band. By placing assets into trust during an individual’s lifetime they do not form part of the estate on death if the individual has survived 7 years from the trust being created. Trusts are therefore often used in IHT planning arrangements.

Wills
Trusts are frequently created in wills particularly where the beneficiaries  are children who need someone to look after them financially.

Life Assurance
Life policies can be placed in trust, yet many people have taken out the protection yet not placed it in trust. An advantage of doing this means that the policy does not form part of the deceased’s estate and can pass to the nominated benficiaries without having to wait for grant of probate or letters of administration.

Provision of Pension
Most pension schemes/arrangements are set up under some form of trust.

Provide for families
Many trusts are set up to provide ongoing financial support for families. This could be done in a will or during an individual’s lifetime.

To assist a charity
Many charities are run as trusts as these are a convenient legal form that allows the charity to be administered effectively and to continue indefinitely.

To give property to those who legally cannot hold it
An example of this would be  a trust legally dealing with a property on behalf of a minor or someone who is mentally incapable. Trustees effectively look after the trust property on their behalf.

To provide for disabled or vulnerable  individuals
Special trusts can be set up to provide inheritance for a disabled or vulnerable person and these trusts enjoy certain tax advantages.

To gain protection from creditors and business protection
If an individual is declared bankrupt it is likely that most of the assets will be sold to pay creditors. Property in a trust is protected from this (subject to a few exceptions) because it does not belong to the bankrupt.

Ownership of land
There are two ways in which jointly owned property can be held.

Joint Tenancy – this is where all the joint holders have an identical and equal interest in the property. When one person dies their share passes automatically to the surviving joint tenants by “right of survivorship”. A deceased persons share of property disposed of by will or intestacy, does not result in a transfer of value for IHT purposes.

Tenants in Common – On the death of one tenant, their share passes as part of their estate as directed by will or by the laws of intestacy

As you can see from the extensive list above, more people are affected by trusts than they perhaps realise, and trusts could be of great benefit  to many more people, their families, beneficiaries.

If you would like to discuss the use of Trusts as part of your financial planning arrangements then please don’t hesitate to contact the team at Proposito on 0845 345 3536.