Asset Protection and Family Trusts
What is a Trust?
Put simply, a Trust is the formal transfer of assets (like money, property or shares) from one person to a beneficiary. Trusts have been in use for thousands of years as a way for families to control and manage their wealth for their heirs. Nowadays, Trusts are not only the preserve of the wealthy but offer a number of advantages to anyone looking to secure and control their assets. They are particularly effective if you want to make sure that only certain individuals can benefit from your assets.
A Trust allows a Settlor (the person making the Trust) to give assets to a Trustee, who will hold them and manage them on behalf of a beneficiary or beneficiaries. When the Trust becomes effective, the beneficiaries will then be able to access the Trust according to the terms of the Settlor.
Different Types of Trust
There are different types of Trust. A lifetime trust is one that becomes effective whilst the settlor is still alive, whereas a will Trust is written into a person’s will and therefore only takes effect after their death. A lifetime Trust is the best way to protect and organise any assets you wish to pass on to a family member during your lifetime. If the settlor is still alive when the Trust is effective, then they may also act as a Trustee. A will Trust is more suitable if you only plan to pass on your assets after you die, but would like to build some protection into your will. They also give you some control over how your assets will be used.
What protections does a Trust offer?
Making a Trust offers a wide range of advantages and minimises a number of risks, including:
- Reducing future probate costs and fees by simplifying probate process.
- Mitigating/minimising potential Inheritance Tax.
- Minimising potential liability for care costs as far as possible.
- Avoiding/reducing “sideways disinheritance” – ensure that assets do not pass to stranger’s family (for instance, if your partner remarried, your assets would pass to them and your children and grandchildren would be effectively disinherited).
- Avoiding/reducing some creditor claims.
- Avoid/reduce claims made against your estate by disaffected relatives who feel they should have been named in your will.
- Protecting a beneficiary’s future inheritance from changes to your circumstances, such as a relationship breakdown.
- Protecting your beneficiary’s future inheritance from the effect of their bankruptcy.
Flexibility and change of circumstance
Discretionary Trusts allow a certain degree of flexibility. The Trustee can change or reconsider the apportionment assets at their discretion, depending on the circumstances of the beneficiaries. For instance, if one beneficiary was in need of financial support during education or training, but one was earning a high salary, then the Trustee may choose to apportion additional funds to the needier beneficiary.
There are however limits to this flexibility. Should you give a property absolutely to a beneficiary, then you cannot change your mind and give it to another (as the property is no longer yours to give). If you kept the property as a source of rental income, then this income could be shared flexibly at the Trustee’s discretion.
How long is Trust effective for?
A Trust does not last forever (unless it is for a charity) but rather has a fixed term. This may be set for a specific date or age (so when a child reaches a certain age, for example) or the settlor may give the Trustee the right to terminate the Trust at their discretion.
Making a Trust can offer real peace of mind in terms of knowing that your assets are preserved as fully as possible, and ensures that your chosen beneficiaries will be well provided for. Whilst Trusts require careful planning and wording by a professional with expertise, they are a very cost effective way of protecting your assets. When you have a well written, carefully prepared Trust in place, you can be sure that you are doing everything possible to protect your assets and provide security for your beneficiaries.
If you’re looking to make a Trust, or just want to discuss your options for financial planning and management, then please do not hesitate to call our team on 0191 567 7244.