05 Dec 2018

10 reasons why you may need a Trust

10 reasons why you may need a Trust

For many people, the perception of trusts is one of unregulated structures used by the wealthy to disguise ownership and avoid tax disclosure, writes James MacKinnon.

However, this is far from the truth and there are many reasons why trusts are suitable structures to assist people in passing on their assets.

Here are ten reasons why a trust may be suitable for you.

1.       Asset Protection

You may wish to pass an asset, e.g. a family holiday home, down the generations but have concerns about the future sale of that asset by the recipient of the gift. A trust can protect the asset and allow you to retain an element of control.


2.       Vulnerable Beneficiaries

You may wish to provide for your children but have concerns that they are at risk due to incapacity, an unstable marriage or financial difficulties. A trust would allow you to provide for children, as and when they needed assistance, whilst protecting against the funds falling into the hands of a third party.


3.       2nd Marriages

With the rise in second marriages, many people wish to provide for their spouse and their children from a previous marriage. Leaving your estate in trust can ensure that your spouse can benefit from your assets during their lifetime, whilst ultimately protecting those assets for your children.


4.       Care Fees Planning

A trust can help to protect your assets from care fees and preserve them for your children. In particular, you may wish to provide for your spouse after your death but want your children to ultimately inherit. Rather than transfer your assets to your spouse and place them at risk if your spouse requires care in the future, transferring your assets to a trust can allow your spouse to retain a benefit to your assets whilst excluding them from any future care fees assessment.


5.       Inheritance Tax Planning

You may have a potential inheritance tax liability but do not wish to gift your assets directly to your children or grandchildren due to their age or lack of financial responsibility. Gifting assets to a trust allows the trustees to hold those assets for your children or grandchildren until a future date, whilst immediately starting the seven year period that you must survive for the value of the assets to leave your estate for inheritance tax purposes.


6.       Avoiding Capital Gains Tax liability

You may wish to gift assets, perhaps for inheritance tax planning reasons, but are prevented from doing so due to the capital gains tax that would be payable on the gift. Transferring assets to a discretionary trust allows you to claim holdover relief, effectively deferring the capital gain and avoiding an immediate liability. Holdover relief can also be claimed by the trustees when the trust assets are transferred to the beneficiary.


7.       Sale of 2nd Home

Where the second home is held in the name of one spouse only, a simple declaration of trust allows the capital gains tax allowance of the other spouse to also be set against any chargeable gain on the sale of the property. This could potentially save up to £3,276 in tax.


8.       Paying grandchildren’s school fees

If you are considering assisting with the payment of your grandchildren’s school or university fees, a trust can reduce the income tax payable on the assets from your marginal rate of tax to your grandchildren’s respective marginal rates of tax. This can result in a large tax saving, whilst also reducing your estate for inheritance tax purposes.


9.       Disabled beneficiaries

You may wish to leave your assets to a disabled relative but are concerned that receipt of the assets would affect the disabled relative’s right to receive benefits or that they would be incapable of looking after the assets. A trust can protect the disabled relative’s right to receive benefits and allow trustees to manage the assets for them. Trusts for disabled persons can also be tax advantageous.


10.   Flexibility

A trust can allow decision-making to be deferred until a future date. This can be particularly useful when you wish to leave your assets, e.g. a family business or farm, to your children after your death but are unsure whether they would want to, or are able to, take on the responsibility of managing those assets. Rather than having to make that decision now, by leaving the assets to a discretionary trust you can allow your trustees to take account of all of the circumstances at the time before making a decision.


If you would like to discuss whether a trust may be suitable for you, click here to speak to one of our experts.

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