Trusts for estate planning provide a highly advantageous avenue for transferring wealth and safeguarding assets. A trust is a legal arrangement that you could use to pass on assets. The trust would be set up so that a person or people, known as the “beneficiaries”, would benefit from the assets. A trustee would manage the assets on behalf of the beneficiaries. You can choose to name more than one trustee.
You could place a range of assets in a trust, from cash and shares to property. Whether you aspire to secure your loved ones’ financial prosperity or ensure a seamless distribution of assets, read on to explore the five excellent reasons why British families frequently opt to utilise trusts for estate planning.
1. Passing on Assets to Children
When it comes to bequeathing assets to your children, trust presents an effective solution. By establishing a trust, you can effectively hold assets until your child reaches adulthood, granting them access and control over the assets as they see fit. Alternatively, you have the option to retain the assets within the trust while providing the beneficiary with a steady income to ensure their financial security.
Moreover, a trust allows you to empower the trustee with the ability to utilize trust assets for specific purposes, such as covering educational expenses like school fees. Additionally, if you intend to pass on assets to a vulnerable adult who lacks the capacity to manage their own finances, a trust can prove to be a valuable tool in ensuring their financial well-being.
2. You Have Control Over Asset Usage
A significant advantage of utilising trusts for estate planning is the increased control it grants you over how the assets are utilized, particularly when compared to gifts or inheritances.
By incorporating a trust into your estate plan, you gain the ability to outline specific guidelines regarding when and how the beneficiary can access and employ the assets. This level of control allows you to align the trust with your vision and intentions for the assets. However, it is essential to strike a balance and avoid imposing excessive restrictions on the trust.
Engaging in meaningful conversations with your beneficiaries regarding their individual challenges and aspirations can prove invaluable. By understanding their needs and goals, you can tailor the trust to provide the necessary support and assistance, thus ensuring it becomes an effective instrument within your estate plan.
3. Preserving Assets Within the Family
Numerous external factors beyond your influence may impact the ultimate recipients of the wealth you have accumulated.
For instance, in the event of a relationship breakdown, certain assets could inadvertently pass to the ex-spouse of your child during a divorce. Similarly, if you were to pass away and your partner were to remarry, there is a possibility that assets could be redirected towards the new partner’s family instead of your own.
By establishing a trust, you can safeguard the continuity of assets within your family, even in the face of changing circumstances. This ensures that a portion of your wealth remains within your family lineage, irrespective of potential alterations in personal relationships or family dynamics.
4. Establishing a Lasting Legacy
While it is customary to pass down assets to children and grandchildren through traditional inheritance, a trust offers the opportunity to safeguard wealth for future generations.
For instance, you can place shares within a trust, allowing beneficiaries to receive income generated from these investments. By retaining the shares within the trust, they can continue to provide ongoing financial support for numerous generations, effectively establishing a resilient and enduring legacy.
5. A trust could reduce an Inheritance Tax bill
If your estate is potentially subject to Inheritance Tax (IHT), a trust can serve as a valuable tool to reduce the tax burden for your loved ones upon your demise.
Assets held within a trust may be excluded from your estate when calculating IHT. Depending on the specific circumstances, you might even retain some benefits from the assets held in the trust during your lifetime.
However, it is crucial to note that the regulations governing trusts and IHT are intricate. For instance, certain assets may still be subject to IHT calculations for a period of up to seven years after being placed in the trust. Therefore, seeking professional advice is often imperative when considering a trust as a means to address potential IHT liabilities.
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There are several different types of trusts for estate planning and they can be complex. Once you’ve placed assets in a trust it can be difficult, and in some cases, impossible, to take them out. So, seeking professional legal and financial advice can help ensure a trust meets your goals.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The Financial Conduct Authority does not regulate estate planning or tax planning.
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