Five Reasons to Set Up a Trust

The main reason for creating a Trust is to protect assets. Rather than giving assets or funds to an intended Beneficiary or Beneficiaries outright, it is often better to place the funds into Trust in the event of a change of circumstances for that individual.

If an intended Beneficiary later goes through a divorce or bankruptcy, the assets or funds do not automatically form part of their estate for assessment.

Similarly, if an intended Beneficiary is entitled to means-tested benefits, you can use a Trust to benefit the Beneficiary without losing their means-tested benefits.

Trusts can be used to help protect against care fees, but the local authorities do have special powers to set aside Trusts created primarily to avoid care fees, so you should seek legal advice before creating any such Trust.

A Trust allows you to pass assets down your family’s generations without creating an inheritance tax liability in your own children’s estates.

If you give your children assets outright, you might also be giving them an inheritance tax liability.

A Trust allows you to retain assets for children or grandchildren if it would be more tax efficient to pass them to grandchildren when they are older without the assets passing via your children’s estate for tax purposes.

The Trustees legally own assets held in Trust, and therefore the Settlor does not own the asset once it has been transferred into Trust (unless they are also a Trustee).

Those assets will not form part of the Settlor’s estate for distribution purposes, and therefore a Grant of Probate will not be required to deal with that asset.

It may be tempting to transfer everything into Trust, but looking at the reasons and tax consequences before doing so is important.

Useful information to have when considering setting up a Trust:

1. Details of any gifts made or Trusts set up within the last seven years;
2. Details of the assets and liabilities in your estate and their values;
3. Details of the financial/personal circumstances of the intended beneficiaries (to include health and their ability to manage funds, finance to include their tax rates and whether they are in receipt of means-tested benefits etc.);
4. Details of what you intend to gift into Trust and their values; and
5. Details of the contents of your Will and how the gift into Trust might affect the existing plan/structure.