- On July 19, 2017
We all want to keep our hard-earned cash in the family when we die. Here we explain how using a Trust can protect your wealth and ensure only the people you want it to go to actually get it.
Most people want to leave something to their spouse, children or other family members but if you simply gift cash, property or other assets to them, these gifts are included in the estate of the person who receives them. This means they are exposed to social impacts, such as divorce, remarriage or bankruptcy.
Directing your wealth into Trust means it is better protected from third party claims, such as from an ex-partner or creditors. The assets are owned by the Trust and are generally considered outside of a beneficiary’s estate, which means they may not be included as part of a divorce arrangement.
We don’t like to think that we or our children will divorce, but the reality is that it may happen – exposing your assets to claims outside of your bloodline.
Trusts also have some advantages when it comes to estate planning in that gifts to certain trusts are treated as Potentially Exempt Transfers (PETs) and will fall outside of your estate for inheritance tax purposes after seven years.
For those who cannot fully commit to losing income or access to capital from gifted assets there are trusts which can enable a continuing income to be paid. Alternatively, a loan could be made to a trust whereby any growth in value is gifted but the right to repayment of the loan is retained.
What are Trusts?
Simply put, Trusts are a legal agreement.
One person agrees to look after the property of another person to benefit a third person.
Take Karen, she has agreed to look after £50,000 from John that he would eventually like to give to Peter, Karen’s son.
Doing this sets up a Trust.
There are three parts to a Trust…
The Settlor – is the person setting up the Trust and putting the property, or assets, into it.
The Trustees – are the owners of the property in the trust, and are legally responsible for looking after the property and distributing it for a particular purpose – such as a loan, gift or income to the beneficiaries.
The Beneficiary – is the person or people who benefit from the property held in trust.
As the property put into Trust is owned by the Trust, it isn’t included in the estate of the person benefiting from it. So, the £50,000 that John would like to give Peter is owned by the Trust and therefore can’t be attributed to, or counted as part of, Peter’s wealth. Karen, as Trustees of the Trust, can decide when and how to give Peter the £50,000.
You can arrange a trust through a solicitor or if you are considering the wider impacts of gifting, including investing the gift or planning ahead to see if you can afford to gift assets, then talk to an Independent Financial Adviser who will also have solicitor contacts for arranging trusts.
For a free consultation about your financial needs call 0118 974 0159 or email firstname.lastname@example.org.