Trusts aren’t just for the landed gentry. They are for anyone who wants to be certain that their wishes will be respected and their loved ones protected.
In recent years, the use of Trusts in addition to a simple Will has become far more common, as they without doubt provide the most useful and robust form of Estate Planning, but in our opinion, public awareness regarding the benefit of Trusts is still far too low.
As a consequence, thousands of individuals and families are suffering from a loss of inheritance plus unnecessary costs and inconvenience that could easily have been avoided.
Trusts are one of the oldest elements of English Law and have been used by the aristocracy and landed gentry for centuries to protect their family legacy and fortune. Many therefore think that Trusts are only for the very wealthy when in fact, they should be considered by anyone who has definite wishes in relation to who should benefit from assets once they have passed away, want the certainty that their loved ones will receive the maximum benefit from their inheritance and the protection from those eventualities in life that affect virtually all families and cause inheritance to be diluted or lost, which in modern life is all too common as family structures and finances are becoming increasingly more complicated.
In essence, a Trust creates an alternative way for a family or group of people to own assets and one that should remove the risk of those assets being exposed to an individual’s personal liabilities. For example, if an individual becomes the owner of an asset due to inheritance and then subsequently gets divorced, his or her personal liability to their spouse means that the asset would typically have to be shared. If that same individual was involved in a Trust where the family group owned the asset then his or her spouse would not have any claim to it, securing it for themselves and future generations. Trusts keep wealth and assets within the family line.
In a general sense, a Trust is nothing more than an arrangement whereby one person agrees to hold property for the benefit of another. For example, parents may decide to place their assets into a Trust for the benefit of their children. This would make the parents the ‘Settlors’ and the children the ‘Beneficiaries’. The management of the assets in Trust would be the responsibility of the ‘Trustees’ who would need to be appointed and whose responsibility is to always act in the best interest of the beneficiaries.
In the example given above it is common, but not essential, that the parents placing assets into the Trust would be appointed as Trustees during their lifetime and retain what is called a ‘life interest’. This means that whilst they have placed their assets into a Trust they retain control and their interest and needs are prioritized whilst they are still alive.
For most families, it will be family members who fulfill all the roles, with the eldest children, aunts or uncles becoming the Trustees for example and children and grandchildren being the beneficiaries.
The advantages of a family owning assets in this way are many because whilst assets are owned by the Family Trust, beneficiaries can receive all the benefit of those assets but they are protected from their own personal liabilities, examples of which are on the following pages.
In addition, Trusts eliminate the need for ‘inheritance’. Typically, when someone dies Probate will need to be completed, which is basically the legal process of transferring the ownership of the deceased’s assets to their heirs. This is often a lengthy and costly process and it is during this period that family assets are exposed to challenges and taxation. If assets have been settled into a Trust, there is no need to transfer ownership. It is often simply a case of appointing new Trustees. As a result, there is no exposure to challenges or generational taxation and the heir’s ability to receive the benefit of the assets is not delayed by Probate nor will it be liable to the legal costs of that process.
Furthermore, Trusts can provide the same level of protection and certainty along with the cost saving and delay reducing benefits for several generations.
Examples of sideways disinheritance, the effects of Probate & reducing the Inheritance Tax burden.
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