Trusts and Family Protection
We’re here to help
TRUSTS
A Trust is a legal arrangement (also known as a “Settlement”) that enables you to give away assets but restrict or direct how and when they are used. Trusts can be used to make gifts in your lifetime and they can also be set up under the terms of a Will. Within a trust there are three main participant: The settlor: this is the person who created the trust and normally gives away the assets that are placed in the trust. The beneficiary(s): this is the person(s) who is to receive the assets or benefit from them. Importantly a beneficiary can also be a trustee and/or the settlor. The trustee(s): this is the person(s) who looks after the assets ensuring they are invested/used in accordance with the rules of the trust and general trust laws.
Benefits of Trusts:
It is believed that trusts have been used since Roman times and broadly speaking their purpose has remained the same. In summary a trust enables you to give assets away whilst still retaining a degree of control, which is why they are so commonly used in wills since we all give our assets away then.
Probate: By placing assets in a trust during their lifetime a testator can ensure that they do not have to go through probate. Trustees can distribute assets to beneficiaries immediately thereby substantially reducing the time and costs for the family.
Beneficiary Protection: Sometimes you may wish to gift something to a child or to someone who is mentally infirm. The trust can protect the property until they are older or the trustees can follow your instructions in using the assets to help the beneficiaries.
Asset Protection: Giving directly to a person who is entitled to state benefits can result in them losing their entitlement to such help. By placing these assets in a trust they can still receive government support. This can prove crucial if means testing for long term care fees is an issue, or if you feel that an outright gift to an individual my be claimed by aone of their creditors.
Tax Efficiency: Sometimes a gift into trust can save tax or avoid tax problems which you would incur if making an outright gift. Trusts can be an excellent way to save £1,000s in Inheritance Tax.
Family Protection Trust
Through hard work and diligence many people have levels of wealth that they could not possibly have imagined when they bought their first home for what now seems to be an ridiculously small price. However whilst it is wonderful to reflect upon a job well done, and feel proud of the inheritance that you are leaving for your family, unless appropriate steps are taken, much or all of this value can be lost in any number of ways. Our life’s work is diminished, and our loved ones receive a fraction and often nothing at all of what we had originally imagined. It is because of this reality that we are often posed this question: “How do we protect each other but not leave our assets vulnerable to the demands of long term care or other common threats?”
Trusts have long been used by the upper classes in this country to shelter assets and ensure that wealth stays within families. However as ordinary families have become richer, so they have become more relevant for ordinary households. Hence more and more people use what is commonly known as a Family Protection Trust:
Created during our lifetime an FPT is a very impressive vehicle for allowing us to protect our estate whilst retaining control. Assets are placed in a trust under terms and conditions defined beforehand. Typically these are designed to protect our welfare and that of our spouse or partner, so nothing changes in terms of our day to day life. We continue to live in our house and spend our money as normal.
Benefits to owning assets in this way
Probate fees can be vastly reduced or even negated altogether.
Assets can be protected against long term care fees or other forms of means testing.
If any potential beneficiaries have marital or financial problems, their inheritance can be delayed or even diverted to other beneficiaries.
The type of trust is can offers both flexibility and control and often proves to be the cornerstone of any estate planning exercise. For help and advice in this area please contact our office to speak to one of our specialists.