It is a common misconception that trusts are the preserve of the very wealthy. In fact, these financial arrangements are used by a whole range of people as an effective means of controlling assets. They have become increasingly popular over recent years for a variety of reasons, including rising property values, increasing care home costs and the static nil rate band, which is causing many people’s inheritance tax liability to rise.
It’s true that setting a trust up can be a complicated process. However, you don’t have to go through it alone. There are family law solicitors in London and the rest of the UK that can help. There is also plenty of advice and information available online that can enable you to make an informed decision on whether or not these financial arrangements are right for you. If you’re considering establishing a trust, take a look at this brief guide.
What exactly is a trust?
Broadly speaking, a trust is simply a way of managing assets such as property, land, investments and money. It involves three parties, the first of which is known as a settlor. This is the person who puts assets into the trust and decides how these resources should be used. In some cases, this individual can benefit from the assets themselves. This type of agreement is known as a ‘settlor-interested’ trust.
The second party is referred to as the trustee, or trustees. These individuals are designated as the legal owners of the assets held in the trust and they are responsible for dealing with them according to the wishes of the settlor. They manage the trust and pay any tax due, and they can decide how to invest or use the assets. Usually, people choose family members or close friends. Alternatively, it’s possible to appoint a company, such as a bank or legal firm.
Last but by no means least are the beneficiaries. Depending on the wishes of the settlor, there may be more than one beneficiary. For example, a whole family or a specified group of people may be identified. Beneficiaries may get the income of a trust, the capital or both.
Note that trusts can be established to pass on assets while you’re still alive or after you die.
Why set one up?
People set trusts up for a variety of reasons. Generally speaking, these arrangements can represent an effective means of controlling and protecting assets. Meanwhile, they can be particularly beneficial in certain circumstances. For example, they can be useful if you wish to stop a potentially reckless child from receiving money until they are old enough to handle the responsibility. They can also be helpful if you want to provide for someone who can’t handle their affairs because they are incapacitated.
In addition, trusts can help to protect your wealth if you become bankrupt and they can be an effective means of ensuring that your heirs don’t face large estate taxes.
How do you start the process?
If you think you could benefit from setting up a trust, it’s worth seeking expert assistance. Bear in mind that the wording of these agreements must be precise, and this is where skilled and experienced solicitors really come into their own. They can guide you through the process, helping you to establish whether or not such arrangements are a wise option in your particular case. If you decide to go ahead, they can also help you to select suitable trustees and they can offer advice on the tax implications of each of your options.
At first, setting up a trust may seem like a daunting and difficult prospect. However, as long as you understand the basics and take advantage of the specialist assistance on offer, you should find the process straightforward – and the financial benefits can be considerable.