The prospect of setting up a Trust, or Trusts, can be daunting. Here are some quick links to help you.
A fundamental reason for setting up Trusts is to manage the tax payable on your assets. Simply put, if your assets are assigned to a Trust, they do not belong to you and, as such, this will reduce your tax liability.
Trusts are also subject to tax, but appropriate management by Trustees can reduce the amount due.
Setting up a Trust is a flexible way of reassigning assets without passing them absolutely to Beneficiaries.
You may also wish to consider setting up more than one Trust, as multiple Trusts can provide even more flexibility.
Below are a few examples of reasons to consider setting up multiple Trusts:
Privacy - Whereas a Will is a public document, which anyone can request a copy of, once it has been admitted to Probate, a Trust is a private document, and none of its contents will become public information.
Different Beneficiaries - You can name different Beneficiaries in different Trusts. This will ensure privacy and separation for all parties, as the Beneficiaries of a Trust will only be party to settlements for the Trust that they are named in.
Autonomy and Management - It is acceptable to appoint different Trustees to different Trusts, and to designate decision-making powers to each Trustee. However, it is critical that within each Trust, the Trustees act unanimously. The consequences of disagreement between Trustees will disadvantage the Beneficiaries, to the extent that their interests may not be met.
Divorce - In the event of a Trust Beneficiary divorcing, the divorce settlement may be impacted by the Trust. Obviously, a Beneficiary’s divorce cannot necessarily be foreseen. However, given that the Trust is designed to protect assets, it may be viewed as a prudent decision in this context. Any Trust that a Beneficiary has not received a benefit from to date may not be included in a divorce settlement, as they have not yet received anything from the Trust.
Cost - It is typically more cost-effective to set up a group of small, simple Trusts, as opposed to one large one. This is largely because the management of specialist Trusts, relating to specific assets or Beneficiaries, is easier to carry out and therefore less likely to lead to conflict.
Creating a Trust, or Trusts, in advance ensures that both your financial affairs and personal welfare are in safe hands if the worst were to happen.
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A Trust is a legal arrangement, where Trustees control money or assets, designated to benefit of one or more people listed in the Trust.
- The owner of the Trust is the Settlor
- The person or persons who manage the Trust are the Trustees
- The person or persons benefiting from the Trust are the beneficiaries
- Discretionary Trusts - The Trustee/s can make certain decisions about how to use the trust income, and sometimes the capital, for the benefit of say a grandchild or a beneficiary not capable of dealing with money.
- Accumulation Trusts - This is when the Trustees are able to accumulate income within the trust and add it to the trust’s capital. They may also be able to pay income out, as with discretionary trusts.
- Interest in Possession Trusts - This is when the Trustee/s must pass on all trust income to the beneficiary as it arises, less any expenses.
- Mixed Trusts - This is a combination of more than one type of trust. The different parts of the trust are treated according to the tax rules that apply to each.
- Settlor-interested Trust - This is where the person who created the Trust, the settlor, retains some or all of the benefits attaching to the property which they have given away. Where the settlor transfers assets to Trustees for the benefit of himself, their spouse, civil partner or family, and the Trust allows income or capital from the Trust assets to be paid to the Settlor. The Trust could be an Interest in Possession Trust, an Accumulation Trust or a Discretionary Trust.
- Non-resident Trusts - This is where the trustees are not resident in the UK for tax purposes.
- Bare Trusts - This is the simplest of Trusts, often used to pass assets to young people. The Trustees look after them until the beneficiary is old enough.
Trusts have been instrumental in mitigating tax since Medieval Times. To this day Trusts are recognised as an efficient way of managing tax liability.
The types of tax which could affect you or your estate are:
- Inheritance Tax
- Corporation Tax
- Capital Gains Tax
- Income Tax
- Non-Taxable income
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and setting up Trusts.
What is a Trust and how does it work?
What are the main types of trust?
Can I reduce or eliminate the tax I pay?
There is no limit as to how many Trusts can be created.
Every person’s requirements as regards their Wills and Trusts are different.
At HB Partners Wills & Trusts we will assess your personal situation and your wishes. With this knowledge, we will make our recommendations accordingly.
How many Trusts should I set up?
The Trustee owns the assets in the Trust. They have the same powers a person would have to buy, sell and invest their property.
It is the Trustees' job to run the trust and manage the trust property responsibly for the beneficiary.
Who owns the assets in a Trust?
A trust enables the transfer of an asset from the Settlor to the Beneficiaries, managed by a Trustees, often with tax advantages.
The major disadvantages of a Trust are:
- Perceived irrevocability - Trusts can be made revocable. However, this may increase any taxes payable such as estate duty, asset protection and stamp duty.
- Loss of control over assets: once the assets are put into Trust, the Settlor will no longer have control over them.
- Potential additional costs - The cost of appointing a Trustee.
What are the disadvantages of a Trust?
Are trusts a good idea?
And why should I consider setting up Trusts as part of my Will?
At HB Partners, our advisers can advise you on all aspects of Trust planning