Living trusts and Wills are a legal way of dealing with property to the benefit of a beneficiary or beneficiaries. Trusts were originally devised as a method of avoiding paying taxes. While a large amount of the loopholes have been closed, trusts can still provide a tax beneficial method of dealing with an assets. This is because income arising to a trust is only liable to basic rate income tax whatever the amount, as long as the trust is set up correctly, they can be used to minimise any inheritance tax liability and can also allow you to control how the inheritance is used long after you are dead.
The benefits of using a trust should not be underestimated. For example, if leaving a property to a child of yours, you can place this in trust so they only have a lifetime interest. This means that should they divorce, their spouse would not be entitled to claim a share of the property. If they were made bankrupt the trustee or Official Receiver could not come after the property.
As well as being made in a Will, trusts can be created during your own lifetime. Most commonly these will be used to avoid having to sell your home to pay the costs of going into care. You have to be careful how these are set up, as tax liabilities can arise upon establishing a trust.
You may not intend a legacy in a Will to take place prior to the beneficiary reaching a certain age, or for their life if they are suffering from a disability which means they will not be able to control their own money. If that is the case you may still wish them to be able to have some of the benefit of the legacy in the meantime, but wish this to be controlled by another person to make sure the money is not wasted. Again, this is a perfect scenario for a trust to be established.
When a trust is set up you appoint one or more trustees. They are regarded as the legal owners of the trust, but have to deal with it in accordance with your directions. They have to look after the trust property, may be entitled to invest it and account to the trust for any profit and have to report to the taxman. You should be careful to ensure any trustee you appoint is someone you can trust, as they will have control over all of the assets in the trust.
The most common types of trust encountered in wills are:
There are 2 further types of trust, the secret and half secret trust. A secret trust arises where a legacy is left to a beneficiary, but there were strict instructions to this person on how the money was to be used to the benefit of another person. This used to be the most commonly used to provide for illegitimate children. A half-secret trust is where the Will makes it clear the legacy is on trust, but does not give information about the trust itself.
There are a myriad of options potentially available to ensure your wishes are met, whilst minimising any tax liability. To find out which Trust would be best for your circumstances, please contact us on 01935 823883