Many people think that trusts are only for the very wealthy to “hide away” assets. However, we use trusts on a daily basis to protect assets for clients who would not class themselves as very wealthy. Sometimes the trust is created and activated when our client is alive. Sometimes the trust is created in the Will of our client and is not activated until our client dies.
Here are some everyday examples of why trusts are used:
If you are married and your spouse dies you may meet someone a few years later and remarry for companionship. Assets from the original marriage can be lost “sideways” to the new spouse. In extreme cases all the wealth from the first marriage can go to the children of the second spouse (the stepchildren) disinheriting (often unwittingly) the children of the first marriage. We have a trust which allows the surviving spouse of the first marriage to use but not own certain assets from the first marriage. These assets will go to the children of the first marriage when the surviving spouse dies thus protecting the assets between first and second death.
When creating your Will you might not be quite sure who will have the greatest need when you pass away. Children or grandchildren? One child’s family or the other? We can use a trust to hold your assets whilst trusted trustees manage the trust for a number of years after you have passed away. You can use a trust if you wish to adopt a “wait and see” approach.
Concerns about a beneficiary:
If you are worried about a beneficiary receiving their inheritance then you can use a trust. The concern might be around alcohol, drugs or gambling etc. Trustees can use funds to help the beneficiary without the funds being squandered.
A trust can be used to save inheritance tax. In certain circumstances the amount of tax saved can be as high as £130,000-00p.
In such a family it is common that one or both parties have children from previous relationships. It is not unusual in this circumstance for a couple to want to benefit each other when the first passes away but also to each ensure that their own children still inherit in the long term.
In this scenario a trust incorporated in both Wills, coming into effect on the first spouse’s death, could provide for the survivor’s continued use and enjoyment of assets. Their wills would also set out what happens to the trust assets on the second death; in this scenario with each generally opting to benefit their own children with what remains.
Disabled or vulnerable child:
A trust can be used to hold assets for the child’s use. State benefits will not be affected. Funds from the trust can be used to give the child a better level of care. For example, the state might pay for a week’s respite holiday and the trustees could top up from the trust fund to extend this to two weeks.
Widows, widowers and remarriage
Individuals who have previously been widowed and then remarry could use trusts to seek to take advantage of inheritance tax allowances which are not available without the use of these trusts. A widow and a widower who then marry each other could, with careful planning, save £260,000-00p of inheritance tax.
Please do not be concerned that professional trustees will incur large fees to run these trusts. The trustees in over 95% of the trusts we create are family and so there are no “running costs” associated with these trusts.
If you would like to meet with one of our Consultants to discuss the use of trusts or any other Estate Planning topic please telephone 01732 868190 or click here.