Trusts
A trust is a legal arrangement created during life or on death. Assets (such as money, property etc) are given to the trust and are managed by the Trustees, for the benefit of someone else, called the beneficiaries.
When assets are given to the trust, they belong to the trust and no longer belong to the person who gave them away. This means that the person giving away the assets can lose control of the assets, and also the benefit of the assets.
There are lots of types of trust. The common types are:
- Trusts for children – to inherit when they are older
- Trusts for the vulnerable – to inherit throughout their life rather than a one-off payment
- Trusts for business – to enable continuation of a business after death
- Discretionary trust – allowing the Trustees to make decisions about which beneficiaries get what, how much they get, and when they get it.
Some trusts have their own tax regime, which means that they are treated as a separate legal person for tax. They may need to complete an income tax return, pay Capital Gains tax and pay a form of Inheritance Tax. Trusts also require ongoing reviews and legal paperwork, and therefore it is important to ensure you are fully aware of the requirements on the Trustees, who can be personally responsible for mistakes.
It is very common to think that a trust is a way to avoid paying tax and care home fees. This is not always true. It is very important to get professional advice about this as trusts can mean that you pay more taxes than you needed to.
Trusts can be a good way of managing and protecting family wealth and an inheritance tax planning option. When done properly, Trusts can be beneficial, but it is important to completely understand why you are putting the trust in place, the consequences of doing so and the ongoing responsibilities that trustees face. Speak to your solicitor about this.
