A trust is the formal transfer of assets (e.g. property, shares or money) to a small group of people or to a trust company on the basis that the assets are held by the trustees for the benefit of others (the beneficiaries).
Trusts can be made in your lifetime, usually by a Trust Deed, or alternatively a trust can be created in the form of Will Trust. Trusts separate the legal and beneficial ownership of assets and this is their unique characteristic; the trustees are the legal owners but the beneficial owners are the beneficiaries.
Why make a Trust?
To Save Tax
During your lifetime you can put assets which you no longer need into a trust to reduce your wealth and minimise Inheritance Tax on your death. Assets can be placed in trust for your grandchildren either during your lifetime or after your death thereby jumping a generation which reduces your own childrens’ exposure to Inheritance Tax.
Assets can be placed in trust to prevent young people receiving or inheriting too much wealth too early in their lives or at an inappropriate time. You may wish to give a life interest to a family member or dependent person rather than make a gift of assets to them outright. A trust is a suitable mechanism for this arrangement. On the death of the lifetime beneficiary, the funds can return to you or pass to your family.
Types of Trust
There are many types of trust and we can advise you on the most appropriate form of trust to suit your purposes.
The Discretionary Will Trust
This was often used in the Wills of married couples to ensure that the nil rate band available to everyone, i.e. the amount which any person can leave without payment of Inheritance Tax, was not wasted on the first death because of the spouse exemption from Inheritance Tax rule. This is no longer necessary since the introduction of the transferable nil rate band between spouses but still has other uses. For example, in preserving assets against the risk of them being used to fund care home fees.
Interest in Possession Trusts
This is a fixed interest or life interest trust which can also be used in a Will. For example, one person can enjoy the assets placed in a trust for life, i.e. receive the income, whilst the capital in due course passes to others, perhaps children of a first marriage.
This may be appropriate if you have identified a group of people you wish to benefit but are unsure what their circumstances will be in the future, i.e. who will require a greater share of the trust than the others.
Disabled or Principal Beneficiary Trust
This is a useful mechanism if any of your beneficiaries are unable to look after their own affairs and are in receipt of state benefits. Assets can be placed in a form of discretionary trust and benefits can be preserved. This type of trust enjoys favoured tax treatment.
A Charitable Trust
You can create your own charity either in your lifetime or on death by creating a charitable trust which receives favoured tax treatment.
As clients get older they need to consider their financial circumstances as a whole. When thinking about Wills, it is sensible to consider the tax advantages of making lifetime gifts to family members or others. Gifts made more than seven years before death are exempt from Inheritance Tax and do not form part of the donor’s estate, provided no benefit is reserved in the asset by the donor.
Osbornes solicitors trust specialists advise on these and other tax planning and tax saving opportunities either independently or in conjunction with clients making their Wills. We focus on preserving and enhancing clients’ assets by advising on tax and succession planning. This often includes transferring assets from one generation to another, not necessarily the next, in a structured way to minimise tax liability and other problems.