A Trust is in simple terms a legal arrangement which individuals known as ‘Trustees’ manage assets on behalf of other individuals known as ‘Beneficiaries’, that have been provided to the Trust by the Settlor (person who created a Trust and ‘Settles’ assets in there.
Trusts have been around since medieval times and are a engrained in our society with many Trusts used to help families pass wealth from one generation to another. One of the largest examples of a Trust is the ‘Grosvenor Estate’. The Trust fund has been used by several generations of the Duke of Westminster’s Family to pass down wealth from one Duke to another.
Why Use a Trust?
Protect Your Bloodline from Divorce
A Trust can be used to pass assets and wealth down to your children and/or beneficiaries. If correctly structured, assets passed via a Trust do not form part of any potential beneficiaries’ estates. This has many benefits. One of these could be protection from any future divorce settlements which your beneficiaries may be unfortunate enough to go through. Since the assets do not directly fall into the beneficiaries Estate, they could be protected from attack.
Protect Your Bloodline from Creditors
In the same vein, it is possible to protect your wealth passed to your Beneficiaries via a Trust from Creditors and/or Bankruptcy. If structured correctly then any future Creditor Claim against your Beneficiaries Estate is unlikely to threaten those assets left in Trust.
Alternatively Assets left ‘Absolutely’ in a Will, do form part of your Beneficiaries Estate and therefore will be under threat from the above.
Protecting Your Wealth from Marriage After Death
Many families have seen their Wealth and their Children unintentionally disinherited after the death of one and the subsequent re-marriage of the second. Leaving Assets Absolutely to one another can cause problems should a partner re-marry and then either subsequently divorce or die before their new partner.
Also known as Sideways Disinheritance, it is very common to hear of situations where children have not inherited what was rightly meant for them.
This can be avoided by leaving Assets within a Trust. By doing so, should the surviving spouse/partner re-marry in the future, then these assets cannot be taken into the marriage. This allows a partner to continue to access the asset without children being disinherited.
Protection from Generational Inheritance Tax
Whilst Trusts have been used to mitigate tax for many hundreds of years, in more recent years they have adapted and become more tax neutral. Despite this, Trusts still have a part to play in helping to mitigate Generational Inheritance Tax, as wealth gets passed down from generation to generation.
Without using Trusts a Family’s Estate could be subject to a tax charge of 40% on anything above the Nil Rate Band. As long as an Estate is structured correctly then this can be very tax beneficial.
Protection from Home being sold to Pay for Care Fees
Placing a home into a Trust such as a Family Home could assist in this asset later being hold to pay for Care should this need ever arise. If planned correctly then the use of a certain type of trust could be very effective in protecting an estate from care home fees.