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How To Protect Family Assets | Trusts Explained UK
Understanding Trusts
A trust is a legal arrangement where one person (the trustee) manages assets on behalf of another (the beneficiary). Trusts are a versatile tool for protecting family assets, providing control over how assets are used and distributed, safeguarding them from potential threats like creditors or divorce settlements. In the UK, trusts can play a crucial role in estate planning and can cater to various financial and familial needs.Types of Trusts in the UK
There are multiple types of trusts available in the UK, each serving different purposes: - **Bare Trusts:** The beneficiary has an immediate and absolute right to both the trust income and the capital. Generally used for children until they reach the age of 18. - **Interest in Possession Trusts:** Beneficiaries have an immediate right to income generated by the trust assets, though not to the assets themselves. Often used for providing income to a spouse for life, with the capital passing to children later. - **Discretionary Trusts:** Trustees have discretion over how to use both the capital and income for beneficiaries. Provides flexible support and protection for beneficiaries, suitable for uncertain future needs. - **Accumulation Trusts:** Trusts where income can be accumulated rather than paid out immediately. Useful for saving funds until beneficiaries are ready to receive them.Benefits of Setting Up a Trust
Setting up a trust offers several advantages, including: - **Asset Protection:** Trusts shield assets from risks such as divorce, bankruptcy, or spendthrift behaviour by beneficiaries. - **Tax Efficiency:** Properly structured trusts can offer tax benefits, reducing inheritance and capital gains tax liabilities. - **Control and Flexibility:** Trusts allow you to dictate terms and conditions on the utilisation and distribution of assets, ensuring family wealth is preserved according to your wishes. - **Confidentiality:** Trusts offer privacy concerning asset distribution, as they are not usually subject to the same public reporting requirements as wills.Steps to Establishing a Trust
To establish a trust in the UK, follow these steps: 1. **Identify Objectives:** Clearly outline why you want to set up the trust and what you aim to achieve. 2. **Choose a Type:** Select the type of trust that best suits your requirements. 3. **Appoint Trustees:** Choose trustworthy individuals or a professional trustee who will manage the trust responsibly. 4. **Define Beneficiaries:** Specify who will benefit from the trust, and how and when they are to benefit. 5. **Draft the Trust Deed:** Work with a legal professional to draft a trust deed, detailing the trust’s terms. 6. **Transfer Assets:** Formally transfer the ownership of the desired assets into the trust. 7. **Register the Trust:** Some trusts need to be registered with HMRC, particularly for tax purposes.Conclusion
Trusts are a powerful means to protect family assets in the UK, providing a combination of control, flexibility, and security. With careful planning and professional advice, you can establish a trust that meets your needs and ensures your family’s financial well-being. Seek assistance from a solicitor or financial advisor to navigate the complexities and optimise the benefits of establishing a trust.Frequently Asked Questions
What is a trust?
A trust is a legal arrangement where one or more 'trustees' are made responsible for assets, which are placed into the trust by the 'settlor'. The trustees hold and manage the assets for the benefit of 'beneficiaries'.
Why should I consider setting up a trust?
You might consider setting up a trust to protect your family assets, manage your estate effectively, mitigate inheritance tax, and ensure your assets are used according to your wishes.
What types of trusts are available in the UK?
There are several types of trusts available in the UK, including Bare Trusts, Interest in Possession Trusts, Discretionary Trusts, Mixed Trusts, Settlor-interested Trusts, and Non-resident Trusts.
Who can be a trustee?
A trustee can be any individual or institution capable of managing the trust responsibly. This can include family members, friends, solicitors, or banks.
What is the role of a trustee?
Trustees are responsible for managing the trust's assets according to the trust deed and ensuring they are used for the benefit of the beneficiaries. They must act impartially and in the best interest of all beneficiaries.
Who can benefit from a trust?
Beneficiaries can be individuals or organizations. They can include family members, friends, charities, or any other entities specified by the settlor in the trust deed.
Can I change the beneficiaries of my trust?
Whether you can change the beneficiaries depends on the type of trust you have set up and the terms outlined in the trust deed. Some trusts allow changes, while others may not.
Is setting up a trust expensive?
The cost of setting up a trust can vary depending on its complexity and the professional advice required. It can involve initial setup fees, ongoing management fees, and possibly tax liabilities.
Do trusts help in reducing inheritance tax?
Trusts can be used to help reduce inheritance tax, but the rules can be complex. Certain types of trusts can qualify for inheritance tax reliefs and exemptions, but it is important to seek professional advice for your specific situation.
How do I set up a trust?
To set up a trust, you will need to decide on the type of trust, identify trustees and beneficiaries, draft a trust deed, and potentially register the trust with HMRC. Seeking legal advice is recommended.
Can a trust be contested?
Yes, a trust can be contested, typically due to disputes about its validity, the intentions of the settlor, or disagreements among beneficiaries. Legal advice may be required to resolve such disputes.
What happens to a trust if a trustee dies?
If a trustee dies, the remaining trustees or a nominated replacement trustee will assume responsibility for managing the trust. The trust deed may specify procedures for appointing new trustees.
Is there a minimum or maximum amount of assets that can be placed in a trust?
There is no legal minimum or maximum amount of assets that can be placed in a trust. However, the costs and benefits of establishing a trust should be considered in relation to the value of the assets involved.
Can I dissolve a trust?
Dissolving a trust depends on the terms of the trust deed and the type of trust. Some trusts may have specific conditions for dissolution; legal advice should be sought to navigate these conditions.
What records should trustees keep?
Trustees should keep detailed records of all trust transactions, decisions made regarding the trust, correspondence related to the trust, and copies of the trust deed and any amendments. Accurate record-keeping is essential for legal and tax purposes.
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