What HM Government says about Asset Trusts
HM Government's website describes a trust as a way of managing assets which would include Investments, land or property, or cash for people. There are three main groups involved in a trust :
The “Settlor” - this is the person who puts assets into a trust
The “Trustees” - this are the people who manage the trust
The “beneficiary” - this is the person/people who benefit from the trust.
For additional clarity, you can have more than one Settlor. You can have more than four trustees but this is the maximum number allowed by the Land Registry when registering a property to the Trust. You can have multiple beneficiaries.
When are Trusts useful?
Trusts are set up for a number of reasons, the most common of which includes :
· The ability to control and protect family assets
· The prevention of sideways disinheritance
· The reduction of probate fees
· The reduction of potential delays in probate
· The provision of long-term care for a potentially vulnerable person
· If someone is too young to handle their affairs
· If someone is unable to handle their affairs because they are incapacitated
· If someone wishes to pass on assets whilst they are still alive.
What is Sideways Disinheritance?
This is where one of your children marry and then, unfortunately, divorce. A property in trust can only be used to benefit the beneficiaries. Therefore, this enables the trusts' assets to remain in the family blood line and not become part of any divorce settlement.
How are Probate Fees Reduced?
The assets in the trust no longer belong in person to the Settlor, they belong to the trust. Therefore, they are not to be counted amongst the assets of the settlor when they pass away. If the settlor had a house in the trust with a value of £300,000 and the average probate fee is 5% this could save the estate £15000 in probate fees.
How Much Can I Put into a Trust?
Currently, the Nil Rate Band for inheritance tax is set at £325,000 per person. Therefore, a single Settlor can place up to £325,000 into a trust and a couple can put £650,000 into it. If these values are exceeded then there will be immediate inheritance tax liabilities to be paid which would amount to 20% of the excess amount being put into the trust.
What is the Role of the Settlor?
The Settlor decides how the assets in a trust should be used - this is normally stipulated in a document called the ‘trust deed’
it is possible for the settlor to be a trustee and also for them to benefit from the assets in a trust but there are special tax rules for this and if in doubt it is always best to seek independent tax advice.
What is the role of the Trustee(s)?
The trustees are the legal owners of the assets held in the trust and their roles are:
· To manage the assets in accordance with the wishes of the settlor as set out in the trust deed or their Will
· To manage the trust on a day to day basis and pay any tax due
· To decide, if applicable. how to invest or use the trusts assets
The trust can continue if the trustees change and trustees can be added later or discharged but there must always be at least one trustee
What is the role of the beneficiaries?
It is possible for there to be multiple beneficiaries to a trust. This could be an entire family or a defined group of people. It is possible for them to benefit as follows :
· An income from the trust - for example from the rent received from a property held in trust
· From the capital only - for example, the receipt of shares when reaching a certain age
· From both the capital and the income of the trust
Can the Will Associates help?
The Will Associates specialise in the formation of discretionary trusts.
These trusts allow the trustees to make certain decisions about how to use the trust income and sometimes the capital.
A lot will depend on what the trust deed stipulates but the trustees can decide:
· What gets paid out (income or capital)
· Which beneficiaries to make payments to
· How often these payments are made
· Any conditions to impose on the beneficiaries
A discretionary trust is most often used to secure a family legacy. This can be especially useful if a grandchild is more in need of financial help than other beneficiaries at some point in their life, or the beneficiaries are not capable enough or responsible enough to deal with money themselves.
Richard Morris is the local consultant in the South Essex area for The Will Associates. Richard can be contacted on Freephone 0800 847 7030 for a free consultation, at a time convenient for you, in the comfort of your own home.