If you’re seeking to protect your assets and reduce the Inheritance Tax (IHT) liability on your estate when you die, trusts can be an effective way of structuring your assets.
A trust is a legal arrangement in which your assets are held by one person (trustee), for the benefit of another person or a group of people (beneficiary).
This enables you, the settlor – the person to whom the assets belong – to preserve and decide what happens to your assets.
Here’s how to protect your assets in trusts.
Why set up a trust?
They can help to minimise IHT and associated costs, as well as ensure that your beneficiaries –such as loved ones or charities – enjoy the benefits of your wealth.
You might set up a trust in several different circumstances, including:
- To control family assets.
- To leave a gift to a charity.
- To pass on assets to a specific person.
- To leave assets to a child or vulnerable person.
- To protect assets while a beneficiary is incapacitated.
You can put any assets into a trust, including money, property or land.
The benefit of putting assets in trust is that you can control what happens to your assets long-term.
For example, many people put their assets into a trust in order to pass them on to children or young people under the age of 18, because children are seen as lacking capacity to accept a willed gift or part of an estate.
By leaving assets in a trust, the settlor ensures that the child receives all the assets they are given.
Another reason why someone might put their assets, specifically their property, into a trust, is to avoid it being used to fund long-term care.
This is because a property in trust is no longer considered to be owned by that person.
Types of trust
There are a number of different types of trust which are used depending on the types of assets, the location of the trustees and the age and vulnerability of the beneficiary.
Bare trusts are the simplest type of trust, typically used to pass assets on to young people. The beneficiary is entitled to all of the assets once they are over the age of 18.
A discretionary trust gives trustees complete control over all the assets, deciding how and when to distribute them to the beneficiaries. These may be used to pass on assets to grandchildren or other young people, with their parents as the trustees.
Mixed trusts combine elements from different types of trust. For example, a person might have access to money within the trust once they are over 18, but not be able to inherit property until other conditions are met.
Interest in possession grants the beneficiaries access to income generated by assets in the trust, but not the assets themselves.
If a beneficiary is classed as a vulnerable person – due to a learning disability, for example – a vulnerable-person trust enables them to pay less tax on the assets.
A non-resident trust is one that has trustees who all live outside of the UK, which can result in a lower rate of income tax for the beneficiary.
Setting up a trust
You should always seek professional advice when setting up a trust to ensure that no mistakes are made during the process.
At Rotherham Taylor, we can help you to:
- Identify your key assets.
- Approach trustees.
- Identify the beneficiaries.
- Activate the trust.
As the settlor, the assets are yours – but you’ll need to choose at least two, and no more than four, reliable trustees to look after the trust.
Protect your assets in trust with Rotherham Tayor
When setting up a trust, you need to be mindful of the legal and financial implications of doing so.
If set up incorrectly, you may end up owing a lot more tax than you realised.
At Rotherham Taylor, we can help you protect your assets in trust with our discreet estate planning services.
We can support you with setting up and administering a trust, reducing your IHT liability, and other estate planning arrangements to secure your wealth for the next generation.
