Family trusts remain one of the best ways of passing on wealth to the next generation. Trusts allow assets to be held by persons called trustees on behalf of beneficiaries. The trustees are under a legal duty to maintain the assets of the trusts for the benefit of the beneficiaries. Trustees have to act prudently and comply with the rules set out in the Trust Deed.
Which type of trust should you set up?
A Lifetime Trust is set up during your life.
A Will Trust is provided for in your will and only comes into effect on your death.
Family Trusts can be used to provide for the education of children and grandchildren.
A Discretionary Trust can be used to protect trust assets from the creditors of the beneficiaries or divorced partners. They are particularly useful to provide for vulnerable family members, for instance, children with learning disabilities or who have mental health issues. They are also a practical way to ensure that your children do not ‘blow their inheritance’!
How to reduce your inheritance tax bill
Trusts can still be used to reduce your inheritance tax bill, although this has become complex since the new inheritance tax rules were introduced in 2006. Setting up a Lifetime Trust without suitable legal advice could cause unexpected inheritance tax charges. Exceed certain limits, and the result may be to pay lifetime inheritance tax at 20% and an additional charge of 6% every 10 years.
Should you transfer your home into a Trust it could be classed as “a gift with reservation”. This means the home could still be treated as part of your estate, even after 7 years have elapsed from your death, and could potentially be regarded as a deliberate deprivation of assets should you move into a care home.
With so many aspects to consider it is essential that you obtain specialist legal advice before setting up a Trust to ensure you and your family get the maximum benefit of the Family Trust.
