With most estates – particularly those that are larger or more complex – there are two main concerns. The first is to ensure that your assets are distributed exactly according to your wishes. The second is minimising that tax burden on your estate and beneficiaries. You want assets to go to people and causes you care about rather than the Treasury.
A properly drawn up and notarised Will is the foundation of estate planning. But sometimes this doesn’t take care of everything you need. Trusts add an extra layer of specific detail to estate planning.
A classic example is when you want to leave money or assets to people who aren’t able or ready to look after them. Minors are common beneficiaries of trust arrangements.
Other reasons people use trusts include:
- Providing for a spouse or partner while protecting the interests of any children (if a surviving partner remarries, their new spouse automatically becomes their next of kin).
- To ringfence assets until children are old enough to take responsibility for their own affairs.
- For vulnerable relatives who can’t look after their own affairs.
- To help succession planning in a family business.
Divorces and remarriages can easily complicate how assets move between generations. Setting up a trust is a relatively straightforward and inexpensive legal means to ensure your assets end up where to want them to.
Types of Trust
There are different types of trust. A specialist trust and settlements lawyer will advise you on which type best meets your needs. The main options are as follows:
- A bare trust is where an asset is held by one person on behalf of somebody else. This is often used for beneficiaries below the age of 18.
- An interest in possession trust is sometimes used to allow somebody to use, derive an income from or live in a property while they are alive, while protecting those assets for specific individuals in future.
- A discretionary trust allows trustees more freedom over how to access and use income or capital. Beneficiaries under this type of trust could be a charity, a group of descendants, or somebody deemed not responsible to make their own financial decisions.
Sometimes the best solution is to mix elements of different types of trust to meet a specific set of circumstances.
A Trust May Not be the Right Option
Depending on your circumstances and what you want to achieve, a trust might not be the most effective option. Unfortunately, we’ve had to deal with trusts that were either unnecessary or which didn’t achieve the desired outcome. One fairly common instance is a trust set up to avoid Inheritance Tax that wouldn’t have been due in any case because the estate was under the threshold value.
If you have specific intentions for how you want your assets to be distributed or used after you die that cannot wholly be covered in your Will, contact the specialist Wills and Probate team at PowellsLaw on 01934 623 501 or email helpforyou@powellslaw.com.
