In the last of their series on Trusts, family lawyer Clare Sanderson runs through the key reasons making a Trust may be right for your family.
A Trust is a legal structure which distinguishes between the legal and beneficial ownership of an asset. The Trustees are the legal owners whilst one or more people receive the actual benefit. Trusts have been in existence for thousands of years – however they do still play an important role in modern day life. They are still frequently created by Will, or during a person’s lifetime. Trusts can also arise automatically by law and can be created by the Courts.
Although Trusts are often associated with tax and estate planning, they do not always need to be aimed at saving tax. There are a number of situations where Trusts can be particularly important:
To provide for a child or vulnerable beneficiary
Due to their age or vulnerability some beneficiaries are unable to own assets themselves and therefore the Trustees hold the assets for their benefit. A Trust protects such beneficiaries against undue influence from other people, or against the beneficiary’s own immaturity. The Trust could end at a specified date, for example when the beneficiary turns 25, which is when they then take control of the assets, but for vulnerable or disabled beneficiaries it may continue for the beneficiary’s lifetime.
Asset protection
Placing assets into certain types of trusts can protect against creditors or marriage breakdown as the assets held
do not belong to any particular beneficiary. Sometimes people gift their assets into trust but include themselves as one of the beneficiaries; these are known as “Settlor Interested” trusts which can have adverse tax implications so caution should always be taken. The assets are however technically outside of their ownership and therefore out of reach of potential third party claims.
Inheritance planning
Trusts can be used to ensure that a person’s wishes regarding the distribution of their assets after death are met, particularly where there are children from a previous relationship or family tensions.
Where assets are left outright to a particular person there is the risk that they may then pass to unintended recipients, if that person remarries or became bankrupt.
A Trust allows a beneficiary to benefit from an asset but with limited control, so they are not able to dispose of it.
A Trust can be extremely important in the right circumstances, provided the document creating it is drawn up correctly. Professional advice should always be sought to ensure that the right Trust is created, and to avoid any unintended tax consequences.
If you are interested in discussing your own situation, please contact Clare Sanderson on 01823 625818 or clare. sanderson@porterdodson.co.uk
