Trusts can be a handy tool in asset protection and tax and estate planning, often due to their flexibility.
It would be best if you did not underestimate the complexity of a Trust and therefore seek advice on:
- Your particular circumstances.
- The Trust that is right for you.
- You understand the tax consequences, the duties of the trustees, and their potential power before entering into any Trust.
Which type of Trust is right for you?
Interest in Possession Trust / Life Interest Trust
A beneficiary or beneficiaries are entitled to income from a Trust for the rest of their lives or for a specific period. There may also be a case for distributing trust assets to other beneficiaries, either during your lifetime or after your death, often referred to as an Immediate Post Death Interest. Inheritance Tax treatment varies depending on whether the Trust is set up during a lifetime or after death.
Discretionary Trusts
Discretionary Trusts are where you have a class of potential beneficiaries, but no one person has an absolute right to the income or capital of the Trust. Instead, trustees decide who is eligible for benefits from the Trust, by how much, and when. Often the trustees will take into account the wishes of the person who created the Trust as per the letter of wishes. However, they must take into account all relevant circumstances.
Disabled Persons Trust / Trust for Vulnerable Persons
Created for those unable to manage their affairs due to health conditions, these Trusts have special tax treatment and are also applicable to children under 18.
Bare Trusts
Bare Trusts are where the trustee holds the property on behalf of another. The beneficiary can call for it at any time, and it is often used for children under 18 who cannot legally hold property but also have other uses.
Personal Injury Trust
A specific type of Trust where damages awarded from a personal injury are transferred into a trust to ensure the individual continues to be entitled to means-tested benefits.
All of the above Trusts are used for tax planning or asset protection purposes in many ways. For example, they are adding more beneficiaries or allowing the beneficiaries to receive their money early. Whilst these form the basis of all Trusts, there will often be variations in terms of trustees’ power.
Due to the complexity of Trusts, consulting with a qualified consultant is the best alternative rather than pigeonholing you and limiting your options.
Some organisations will create names for Trusts, marketing them as a solution that no one else has. The reality is that beneath it all, they are simply a collection of the trusts listed above.
Beware unqualified advisers “selling solutions” like Probate Property Trusts or Care Home Protection. Unfortunately, there is a growing market for these types of providers. They will sell a product that doesn’t work, and you will have to spend much more money trying to unwind the scheme.
What we can offer you:
- Advice based on your particular circumstances and the type of arrangement most appropriate for you.
- Preparation and advice on establishing a Trust structure that suits your needs.
- Tax implications of the Trust both at the time of its formation and in the future.
- Registration of the trust. See our Trust Registration page for further details.
