A trust or settlement is a fund which contains assets that are controlled by you and / or a nominated third party for the benefit of specific individuals. They are governed by complex legal regulations and separate tax rules. A trust can be set up at any time during your lifetime and can come into force immediately or, if created under the terms of your will, upon your death.
Trusts can take various forms, for example:
Grandchildren
Grandparents often set up trusts during their lifetime to provide funds for their grandchildren's education and additional expenses.
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Any funds that remain in the trust when the grandchildren have completed their education will be paid to them when they reach a specified age. In addition, many grandparents wish to leave their grandchildren a cash gift in their will. If it is a substantial amount the gift may be held in a trust until they reach the age of 18 or a later specified age.
Provision for family on second marriage
Many people remarry and have a second family with their new spouse. Trusts can be used to provide for a new spouse whilst also preserving funds for the children from both the first and second marriages.
Tax planning
Placing assets into a trust during your lifetime can help to minimise your inheritance tax liability. Any assets held in a trust do not form part of your estate when you die and may escape inheritance tax, if sufficient time has passed since you placed the assets into the trust.
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It is also possible to place any death in service benefits (which may flow from a pension scheme membership) and life policy proceeds into a trust fund. By placing these interests in a trust you are ensuring that they do not form part of your estate on your death and will therefore not be subject to inheritance tax. As the benefits are usually only paid out in the event of your death (i.e. you would not benefit from them directly) this is a good method of reducing your estate's inheritance tax bill.
Our experienced team can assist you with all aspects of tax planning and trusts. We can offer clear advice on the types of trusts available and provide practical support for the day to day administration of trusts, including the preparation of annual accounts and the submission of tax returns on behalf of the trustees.
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