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Trusts Guide.
Many people use a trust to reduce inheritance tax, if you put an asset into a trust you no longer own it, so depending on when you die your beneficiaries may not need to pay inheritance tax on it.
What is a Trust?
In simple terms, it's a legal arrangement where you can give an asset, which can be property, money, shares etc. to someone- a 'trustee' to look after for another person the 'beneficiary'.
The trustee technically owns the assets and will manage the trust for the beneficiary, who will receive the asset at a given time.
The role of a Trust.
If you are in a position where your estate is liable for Inheritance tax when you die, setting aside assets when you are alive should be considered as they may 'possible' be exempt from inheritance tax, we will come on to the 'possibly' part.
You must remember you will no longer own the asset when it is in trust, you do of course have the power to set the rules of the trust and, for example, when the beneficiary is entitled to the asset.
Types of trust.
Now this can get complicated and you should seek legal advice when setting up a trust, as there are several types of trust, and it will come down to what's best for tax and fits the purpose.
The basic trusts are
- Interest in possession trust - the beneficiary can receive an income from the asset but not the asset itself. An easy example of this is the trust is set up with a partner as the beneficiary, say it's a rented property, the beneficiary can receive the income from the property but when they die it will pass to a specified recipient, children for example.
- A Bare Trust - straight forward - gives everything to the beneficiary (if over 18)
- Mixed Trust - bit of a mix and match - part of the trust is like the, 'Interest in possession trust' but some of the assets are treated under the rules of a different trust.
- Discretionary trust - this gives the power to the trustees to decide how the assets are distributed, and investment decisions within the trust.
- Vulnerable Persons Trust - this may be of tax benefit if the beneficiary is a 'vulnerable person'.
- Non resident Trust - once again may be of tax benefit.
There is a myriad of considerations when setting up a trust, most are set up very easily, some may be subject to legislation changes, or allowance changes, or may be the structure of a Will, hence the need for professional involvement.
If you want to set up a trust.
- Write down why you are setting up the trust and what you want it to achieve.
- Make sure the trustees are happy to act and know their responsibilities.
- Get together your financial information and Wills, then we recommend you speak to a solicitor.
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