A trust is a way of handling an asset, which can be a property, investments or an amount of money.
Niki Patel, tax and trust specialist at St. James’s Place, spoke about the benefits of trusts and who they would suit.
She said: “Individuals choose to set up a trust to protect their wealth and pass it on through generations, while maintaining an element of control in ensuring that the people they wish to benefit actually benefit, so they can ultimately have some flexibility in terms of who will benefit and when.
“A trust can be designed to cater for a range of individuals that can benefit or only a few that can benefit, either way it means that the person setting up the trust can ensure that it meets their overall objectives.
“Another reason is to cater for those who may not be able to otherwise manage their money, either because they are minors, disabled or vulnerable individuals.
“Placing funds in trust can also help protect against third party claims, so potential bankruptcy and divorce.”
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She said trusts are often used as a way to arrange assets to minimise a person’s tax liability, such as for income tax, capital gains tax or inheritance tax.
Trusts can also serve a dual purpose, providing an income during the settlor’s lifetime – this is the person who puts the assets in the trust – and then creating a legacy for future generations when the settlor dies.
Ms Patel said people mostly set up a trust in order to make a gift to other individuals. This may mean they can’t access the funds once they have been gifted although some providers offer different types of trusts to accommodate what a person wants to do.
The wealth management expert said: “Individuals ought to be aware that a Trust Deed is a legal document.
“A trust is generally established to hold and manage assets for the benefit of someone else. Accordingly, the trustees are responsible for making sure that they carry out their duties and act in good faith at all times.
“They are also required to ensure that they review the trust assets and administer the trust correctly which can involve things like, registering it with HMRC, completing tax returns as well as other documentation.”
She said the trustees have to be careful when trying to access the funds to make payments to beneficiaries as tax implications may arise when the funds are made available in cash.
Ms Patel added: “In other scenarios, access may not cause an issue depending on when the trust was settled, the age of the beneficiary and the type of investment involved.”
Putting assets in a trust is one way to avoid inheritance tax, a 40 percent tax that applies to any total inherited assets above the value of £325,000 received from an individual, or above £650,000 from a couple.
However, the rules vary depending on the type of trust a person has set up. One type of trust is a bare trust, where the assets are held in the name of the trustee but go directly to the beneficiary.
Assets put into a bare trust may avoid inheritance tax as long as the settlor survives for seven years after the assets are put in trust.
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