The experts at Flint Bishop look at the importance of trusts in estate planning, from inheritance planning to safeguarding assets for vulnerable beneficiaries
Trusts have long been a cornerstone of estate planning, often utilised for inheritance tax planning. However, since the introduction of the transferable nil rate band for married couples and civil partners in 2007, some have questioned their necessity. While this may be true for some elements of inheritance tax planning, trusts remain indispensable for protecting assets and passing on wealth.
What is a trust?
A trust is a legal arrangement whereby assets are held for chosen beneficiaries. Trustees, typically family members or trusted individuals, manage these assets and oversee their distribution. A solicitor can also act as a professional trustee to ensure impartiality. Beneficiaries can include anyone, and in some cases, a beneficiary may also act as a trustee, though it’s advisable to seek legal advice to avoid conflicts of interest.
Trusts are governed by statute, and trustees must fulfil their legal obligations, including tax returns to HMRC, preparing accounts, and holding regular meetings.
Are there different types of trusts?
Yes, there are several types of trusts. One popular type is the discretionary trust. These trusts give the trustees the discretion to decide which beneficiaries within a class (group of beneficiaries) should receive income or capital from the trust and when, guided by a letter of wishes from the person transferring the assets into trust. Discretionary trusts offer flexibility, allowing trustees to adapt to changing circumstances. They can also protect assets for vulnerable beneficiaries and safeguard wealth during life and after death. However, there are tax implications, so professional advice is essential.
Life interest trusts give a beneficiary (life tenant) the right to income or property occupation for life. Once this ends, the capital passes to the remaining beneficiaries named in the trust. These trusts are useful for those providing for their spouse, while preserving the capital of the property for children from a previous relationship and for care planning.
Trusts can also be created for disabled and vulnerable beneficiaries, either during life or through a will. These provide peace of mind by ensuring assets are properly managed for the vulnerable beneficiary while preserving entitlement to state benefits.
Seeking professional advice
As trusts have become more complex in recent years, particularly with their registration with HMRC and tax implications, seeking professional advice from a qualified practitioner is invaluable when considering creating a trust. Our team is dedicated to guiding clients through the process helping them understand how the trust will work, what the law requires, the expense of running the trust, and its taxation. When considering ways to secure your assets, pass wealth down to younger generations, or protect assets for vulnerable beneficiaries, trusts are incredibly useful.
For further information on creating a trust, contact Laura Clare, from Flint Bishops’s wills, probate, tax and trusts department.
Tel: 01332 226116
Email: [email protected]
Web: flintbishop.co.uk
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