For many of you, ensuring the security of your assets for future generations is a paramount concern.
Many of our clients come to us with concerns about the potential impact of Inheritance Tax (IHT) and the possibility of disputes among beneficiaries regarding their inheritance.
In these circumstances, we often recommend trusts be employed as a strategic tool to not only protect your assets but also to ensure that your estate wishes are fulfilled effectively.
In essence, a trust is a legal arrangement wherein assets are transferred from one party, known as the settlor, to be held by another party, the trustee, for the benefit of a third party, the beneficiaries.
This arrangement allows for a separation of legal ownership and beneficial interest, which is crucial in addressing various estate planning concerns.
The roles of settlor, trustee, and beneficiary
Within trust law, there are a few key terms to be aware of.
The settlor is the one who establishes the trust by transferring their assets into it and decides on the rules for how these assets should be managed and distributed.
The trustee is responsible for managing the trust’s assets according to the trust’s terms and in the best interests of the beneficiaries.
Finally, the beneficiaries are those who receive benefits from the trust, which may include income or other advantages as determined by the trust’s terms.
Different types of trusts and their unique features
Trusts can vary greatly in terms of their structure and purpose:
- Discretionary trusts give the trustee the power to decide how the trust’s assets are to be distributed among the beneficiaries.
- Life interest trusts allow one beneficiary to receive the trust income during their lifetime, after which the capital passes to another beneficiary.
Each has its own tax implications and defined way to set up the trust so it’s important that you speak to a solicitor when considering each option.
Benefits of using trusts in asset protection
Trusts are a fundamental tool in estate planning, offering numerous benefits that can safeguard an individual’s assets from various risks while ensuring that their wishes are meticulously followed.
Below are the key advantages of utilising trusts in asset protection:
- Control over assets: Trusts enable settlors to specify exact terms for how and when assets are to be distributed, thus maintaining control over the assets even after they have passed away.
- Protection from creditors and legal disputes: Trusts can offer a robust defence against claims from creditors and legal disputes, thereby safeguarding the assets for the intended beneficiaries.
- IHT efficiency: By properly structuring a trust, it’s possible to minimise the exposure to IHT, ensuring that more of the settlor’s estate goes to the beneficiaries rather than to tax.
- Ensuring beneficiary security: Trusts help ensure that assets are distributed according to the settlor’s wishes and that beneficiaries receive what they have been promised.
Employing trusts in estate planning not only provides a strategic advantage in asset management and protection but also ensures peace of mind for you, the settlor, knowing that your estate will be managed according to your precise wishes.
Setting up a trust
Setting up a trust involves several key steps:
- Determining the appropriate type of trust based on the settlor’s objectives.
- Choosing trustworthy trustees and defining the terms of the trust.
- Engaging a solicitor to ensure that the trust is legally sound and effective.
It is also essential to have a well-drafted Will that aligns with the trust arrangement to ensure a cohesive estate plan.
Selecting the right type of trust depends on the settlor’s specific circumstances and goals.
As private client solicitors, we play a critical role in helping you navigate these choices, offering guidance based on our extensive knowledge of trust law and its applications to individual situations.
Our expertise ensures that your chosen trust structure maximises your benefits while aligning with your estate planning objectives.
For more information on trusts and estate planning, please get in touch.