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Trusts
Trusts
Trusts are legal arrangements that can be created either during your lifetime (often referred to as lifetime trusts or settlements) or through your Will (commonly known as Will Trusts). Instead of making an outright gift, a trust allows you to transfer assets to appointed trustees, who then manage those assets for the benefit of the named beneficiaries.
Trusts offer a high degree of flexibility and control, making them an effective estate planning tool. They can be used to protect vulnerable family members, safeguard assets in the event of remarriage, divorce, or bankruptcy, assist with care fee planning, and help mitigate inheritance tax liabilities.
Unlike fixed gifts, which do not take future circumstances into account, trusts allow decisions to be made at a later stage when beneficiaries’ needs and personal situations are clearer. This flexibility can be particularly valuable where financial, personal, or family circumstances may change over time.
It is important to fully understand the legal and tax implications of setting up a trust. I can assess your individual circumstances and provide clear advice on whether a trust is suitable, and if so, which type of trust best meets your objectives and family needs.
Situations Where Trusts Can Be Beneficial
Young Families
Parents often wish to protect their children who are still financially dependent, particularly in the event of an untimely death. In such cases, a discretionary trust can allow estate assets to be used for the children’s benefit in a way similar to how the parents might have used their resources during their lifetime.
Children’s needs can vary significantly depending on their age, education, abilities, and personal circumstances. A discretionary trust offers the flexibility to distribute income and capital according to each child’s individual needs as they arise.
Alternatively, parents may choose to set up a bereaved minor’s or bereaved young person’s trust, allowing children to receive their inheritance at a later age, often up to age 25. This approach can be preferable to children automatically inheriting at age 18 under intestacy rules.
Other options include trusts that provide income to minor beneficiaries until they reach an appropriate age to receive capital. Proper planning ensures children are financially protected in a way that reflects family values and any special needs.
Marriages, Second Marriages, and Blended Families
In second or subsequent marriages, particularly where there are children from previous relationships, individuals may wish to provide for their spouse while ensuring assets ultimately pass to their children.
A trust can achieve both objectives. For example, a trust may allow a surviving spouse to live in the family home for their lifetime or receive income from trust assets, while preserving capital for the children to inherit at a later stage.
Such trusts can be drafted with flexibility, allowing trustees to adapt to future circumstances. They may end on the spouse’s death or earlier, such as on remarriage, depending on the testator’s wishes. Trustees may also be given discretion to advance capital where appropriate.
Grandparents
Grandparents may wish to support their grandchildren, for example by contributing to education or future financial needs. Rather than making outright gifts, a trust allows greater flexibility to respond to the grandchildren’s evolving needs.
A discretionary trust enables trustees to distribute income and capital as required, while other trust structures can provide income rights with discretion over capital distributions. Trust planning can also play an important role in inheritance tax mitigation for larger estates.
Disabled and Vulnerable Beneficiaries
Providing for a disabled or vulnerable family member requires careful planning. A trust allows trustees to manage funds on behalf of the beneficiary, ensuring assets are used appropriately and responsibly.
An outright gift to a beneficiary who cannot manage their financial affairs may require the appointment of a Court-appointed deputy, which can involve formal procedures and additional costs. A properly structured trust can help avoid this.
Trusts may also protect a beneficiary’s entitlement to means-tested benefits and offer protection against care fee assessments, as trust assets are generally not treated as part of the beneficiary’s estate.
Protecting a Profligate Beneficiary
Where a beneficiary has difficulty managing money or has a history of financial instability, an outright gift may not be appropriate. A protective trust allows the beneficiary to benefit from the estate while ensuring the assets are managed responsibly by trustees.
This type of trust can be particularly useful where there is a history of bankruptcy, debt, or financial mismanagement, helping to preserve assets while still providing financial support.
Professional Advice
Trust planning can be complex and should always be tailored to your personal and family circumstances. I provide clear, practical advice to help you understand your options and create trust arrangements that protect your assets and support your loved ones in the most effective way.