Trusts come in many different forms but they can solve many of the risks and uncertainties faced by an individual looking to protect their assets after they have gone. We will be able to advise you on your situation and recommend the best way to protect your assets and your loved ones. If you would like to arrange a no-obligation consultation to discuss how you can protect your assets using Trusts, get in touch today.
The situations that Trusts can help to resolve include the following:
- Certain individuals who aren’t provided for in your Will being able to contest it.
- If one or more of your children has an addiction – drinking, gambling, drugs etc. and were to inherit a large amount of money they may waste it or cause harm to themselves or others.
- If you have children from a previous relationship then marry or enter into a civil partnership later in life and die before your spouse / civil partner, your new spouse / civil partner will often inherit the assets, leaving your children with nothing. This is known as sideways disinheritance and is very common these days.
- If you get together with a new partner later in life and both have children from previous relationships, when the first person dies, there is nothing to stop the survivor changing their Will to leave everything to their own children and nothing to the step-children.
- Having to sell your home to pay for care fees, something that over 40,000 people each year have to do.
There are also risks and difficulties for those that are benefiting from a Will that a Trust can help to avoid:
- The probate / estate administration process is lengthy, onerous and can be extremely expensive.
- If a beneficiary is on a means tested benefit and then inherits an amount over the savings cap, their benefits will stop and the inheritance is used to pay for any ongoing care or needs until the money has run out and then benefits have to be re-applied for, which can often take many months.
- If an individual is going through a divorce when inheriting, a large chunk of the inheritance may have to be paid out to the ex-spouse / civil partner as a settlement.
- If an individual is in debt when inheriting, the inheritance maybe taken to pay off the said debt.
- If an individual’s estate is over a certain value, inheritance tax (IHT) has to be paid at 40%. Anything inherited gets added to what they already have, potentially giving the beneficiary’s family an IHT issue when previously there wasn’t one.
What is a Trust and how do they work?
Trusts form a very important part of estate planning when it comes to protecting vulnerable family members or assets, whether that be a house, an antique, a work of art or cash.
There are two simple ways of understanding what a trust is:
- In the real, physical world, if you own a property and wanted to keep certain people out you could build a fence around it. A trust can be imagined as a legal way to put a fence around something.
- A trust can also be looked at as a “gift” that is delayed and given at some future point or points in time. For example, since a person cannot inherit if they are under 18, money and/or property would have to be held in trust until they come of age.
In very simple terms
An individual (known as the Settlor), can give an asset (money, an item or property), to trusted individuals (known as Trustees) to look after for the benefit of the eventual recipients (known as Beneficiaries).
The Trustees are legally responsible for the assets whilst they are held in trust. They will manage those assets according to the Settlor’s wishes and are legally accountable to the Beneficiaries to act in the Beneficiary’s best interests.
There usually needs to be a minimum of two Trustees and two Beneficiaries although there are exceptions and the Settlor can also appoint themselves as a Trustee and Beneficiary at the same time.
There are two ways that a Trust can be set up: in a Will (a Will-trust) or as a separate, standalone Trust document. A Will does not take effect until an individual has died, so a Will-trust (as it is written into the Will) does not get set up until that happens. A standalone Trust is set up from day one. The best option for you will depend on what the Trust is to be used for and we will always advise you on the best way forward.