4 Reasons to Set Up A Trust for Your Loved Ones

When planning for the future, it is very common to think of the good times and all the memories you will be creating with your loved ones. However, it is also crucial to be practical and make provisions for your family when you can no longer be present with them physically.

It takes a lot of hard work and sweat to build your assets, whether it is a house you bought, financial assets or even a collection of modern art paintings, thus, make sure it is distributed to someone you really want. Additionally, you must also make provisions for any minor children or dependent adults.

Creating a trust will ensure your asset is properly distributed and prevent future generations from paying an exorbitant amount of inheritance taxes.

If you’re still wondering whether forming a trust is the best decision or not, we’ll guide you through it all. Let’s dive in!

What is A Trust?

A trust is a legal arrangement for managing assets (finances, properties, or investments). It involves three people, the “settlor” (the one who is creating the trust), the “trustee” (who will be managing the assets), and the “beneficiary” (who will receive the assets).

In the UK you can create multiple types of trusts:

Bare trust
Interest in Possessions trust
Discretionary trusts
Accumulation trusts
Mixed trusts
Settlor-interested trusts
Non-resident trusts

The income tax on different trusts differs, but most trusts do not pay tax up to £500, beyond which the income is taxable.

Inheritance tax (IHT) is levied after a person passes, and the assets are inherited by the beneficiaries. Inheritance tax is about 40% on your possessions, or 36% if you leave 10% of your assets to a charity.

Some other estate planning options are a will or a power of attorney (POA). While a POA certificate can be used when you want to give someone you trust the power to control your finances or make decisions on your behalf if you are medically indisposed, it cannot offer the benefits that a trust offers.

Why Is Putting Your Assets Into A Trust A Better Option?

1. Avoiding Probate

Once a trust is created, the trustees become the legal head of your estate, and the settlor, unless they choose to be nominated as a trustee, has no control over it. Therefore, assets that are part of the trust will not come under the Grant of Probate.

Probates can take anywhere up to a year. Depending on whether a will or POA has been created, the executor will need to apply for probate to share the estate according to the instructions on the will. Until the probate has been resolved, the beneficiary cannot dispose of the property or use the money in the bank.

2. Save on Tax

Putting your estate in a trust can help your beneficiaries save money on taxes. You can avoid paying inheritance tax (till a certain amount), capital gains tax and stamp duty.

When your estate is held in a trust, then it no longer belongs to you. This is why, when you pass, these assets won’t be counted as your possessions. Your tax exemptions will also depend on the kind of tax that you are creating. Therefore, it is best to discuss it with your attorney and financial advisor before creating a trust.

Creating trust will go a long way in your future family wealth planning, helping your children and grandchildren save hundreds of pounds in inheritance taxes.

3. Protect Your Dependents

If you have a minor child, or family members for whom you need to make provisions, then a trust is a much better way to go than a POA.

For instance, if you place your assets under the Bare Trust, then a trustee will maintain the inheritance and investment until the child reaches the age of 18, after which possession is granted. You can also create trusts that will provide an allowance to a dependent member until their demise.

4. Maintaining Control Over Your Estate

If you are wondering if putting your assets in a trust will strip you of your property and independence, leaving you penniless, you are mistaken. Trusts are actually a great way to protect and control your estate.

When you place your assets in a trust, you are not directly bequeathing the property to a beneficiary; rather, you are placing it in the hands of a trustee.

For instance, if your beneficiary undergoes a divorce or files for insolvency, they will not be able to liquidate your assets in an unfair manner.

Even after your passing, you will have certain control over your possessions. For example, instead of directly giving all your possessions to one beneficiary, you can create a list of beneficiaries and leave the asset distribution to the discretion of the trustees.

Conclusion

Trusts are a great way to secure and save your hard-earned money and assets, not just from taxes but also from any unforeseen situations befalling your beneficiaries. To create a successful trust, you will need to find trustees whom you can, well, trust.

Seek advice from an attorney and financial advisors to determine the trust and terms that best suit your needs.