Find A Professional
Trusts Explained: How to Protect Family Assets
Understanding Trusts
A trust is a legal arrangement in which one party, known as the settlor, transfers assets to another party, the trustee, to manage for the benefit of a third party, known as the beneficiary. Trusts are commonly used in the United Kingdom for multiple purposes such as managing and protecting family assets, ensuring property succession, and for tax planning. By placing assets into a trust, the settlor effectively relinquishes ownership, although they can still maintain some control over how the assets are managed.Types of Trusts
There are several types of trusts in the UK, each serving different purposes:- Bare Trusts: Here, the beneficiary has an absolute right to the assets and income, and the trustee only holds the property in name.
- Interest in Possession Trusts: These allow the beneficiary to receive income generated by the assets immediately, though they may not necessarily own the underlying assets.
- Discretionary Trusts: The trustees have discretion over how to distribute income and capital to the beneficiaries.
- Accumulation Trusts: These trusts accumulate income until it can be used either for the benefit of the beneficiaries or added to the trust capital.
- Life Interest Trusts: Often used in inheritance planning, they allow one beneficiary to enjoy the assets during their lifetime, with the assets passing to another beneficiary after their death.
Benefits of Setting Up a Trust
Setting up a trust can provide several advantages:- Asset Protection: Trusts can protect family assets from potential creditors, divorce settlements, or mismanagement by inexperienced beneficiaries.
- Tax Efficiency: Trusts can be used for inheritance and capital gains tax planning, potentially reducing the tax burden on the estate.
- Controlled Distribution: Trusts allow for controlled distribution of assets, ensuring they are used in a manner consistent with the settlor’s wishes.
- Continuity: Trusts ensure continuity in asset management and distribution after the settlor’s death.
Setting Up a Trust
To set up a trust in the UK:- Consult a Solicitor: Seek professional legal advice to understand the best type of trust for your situation.
- Create a Trust Deed: This legal document sets out the terms of the trust, including the roles and responsibilities of trustees and the rights of beneficiaries.
- Identify Trustees and Beneficiaries: Choose trusted individuals who will manage the trust and benefit from it.
- Transfer Assets: Move the specified assets into the trust in accordance with the trust deed.
- Register the Trust: Register the trust with HMRC and comply with any tax obligations.
Conclusion
Trusts are a highly effective tool for protecting family assets and ensuring they are managed and distributed according to your wishes. Whether you are aiming to safeguard wealth, control how assets are passed on, or minimise tax liabilities, setting up a trust can provide peace of mind and financial security for your family in the United Kingdom. Ensure to seek professional legal advice to tailor a trust to meet your specific needs.Frequently Asked Questions
What is a trust?
A trust is a legal arrangement where one or more individuals (trustees) manage assets for the benefit of others (beneficiaries).
Why should I set up a trust?
Setting up a trust can help in protecting family assets, reducing inheritance tax liabilities, and managing assets for beneficiaries who may not be able to manage them efficiently themselves.
What types of trusts are there?
There are several types of trusts, including bare trusts, interest in possession trusts, discretionary trusts, and mixed trusts.
How do trusts help in protecting family assets?
Trusts protect family assets by ensuring they are managed by trustees according to specified rules and cannot be squandered or claimed by external parties like creditors.
Can trusts help in reducing inheritance tax?
Yes, trusts can reduce inheritance tax liabilities by removing assets from an individual's estate, provided certain conditions are met.
Who can be a trustee?
A trustee can be a trusted friend, family member, professional advisor, or a trust company.
Who can be a beneficiary?
Beneficiaries can be family members, friends, or any individuals or entities the settlor wishes to name, including charities.
What is the role of a trustee?
A trustee manages the trust's assets, makes decisions about distributions, ensures proper record-keeping, and acts in the best interests of the beneficiaries.
Can I be a trustee of my own trust?
Yes, you can be a trustee of your own trust, but it may be advisable to appoint additional trustees for governance and impartial decision-making.
Are trusts regulated in the UK?
Yes, trusts in the UK are regulated and must comply with relevant laws, such as the Trustee Act 2000 and the Inheritance Tax Act 1984.
How are trusts taxed in the UK?
Trusts are subject to different types of taxation, including income tax, capital gains tax, and inheritance tax, depending on the type of trust and its specific circumstances.
Can I change the terms of a trust?
It depends on the type of trust. Some trusts, like discretionary trusts, may allow changes, while others, like irrevocable trusts, usually do not.
What happens if a trustee fails in their duties?
If a trustee fails in their duties, they can be held personally liable and may face legal consequences, including being removed as a trustee.
How do I set up a trust?
To set up a trust, you generally need to draft a trust deed, appoint trustees, and transfer assets to the trust. It is advisable to consult with a legal or financial advisor.
What is the difference between a will and a trust?
A will is a legal document that expresses an individual's wishes regarding the distribution of their estate after death, while a trust can be used to manage and distribute assets both during their lifetime and after death.
Useful Links
Have you found an error, or do you have a link or some information you would like to share? Please let us know using the form below.
- Ergsy carfully checks the information in the videos we provide here.
- Videos shown by Youtube after a video has completed, have NOT been reviewed by ERGSY.
- To view, click the arrow in centre of video.
- Most of the videos you find here will have subtitles and/or closed captions available.
- You may need to turn these on, and choose your preferred language.
- Go to the video you'd like to watch.
- If closed captions (CC) are available, settings will be visible on the bottom right of the video player.
- To turn on Captions, click settings .
- To turn off Captions, click settings again.