Trusts have been used in estate planning for centuries and are a vital component of good estate planning. The major benefit of using trusts is their flexibility and the peace of mind they provide in terms of asset protection for generations to come. Some examples of the types of trust we offer are set out below.
Life assurance trusts:
If you have life assurance contracts payable on your death, you need to consider establishing a trust to mitigate potential inheritance tax charges on the sums paid out and to protect the funds for successive generations.
This works by creating a lifetime trust and assigning the rights to the policy to the trust rather than the benefits becoming payable to your estate.
The trust can be discretionary, with trustees able to use their discretion to use the fund, so that all family members are potentially able to benefit. This provides ultimate flexibility for the trustees and your family to utilise the funds in the most tax efficient and secure way possible.
Asset protection trusts:
An Asset Protection Trust (‘APT’) is a trust that is put in place during your lifetime rather than coming into force on your death (as with a Will trust). Some people prefer the reassurance that everything is in place during their lifetime rather than leaving assets to be used at the discretion of trustees after their death. The benefits of this type of trust include:
- No claim on the estate can be made over the assets transferred into the APT.
- Assets are not included as part of the client’s estate for probate purposes.
- Where the asset is a property, the APT can reduce the lengthy delays often associated with probate when dealing with a property.
Crucially, any assets within the APT will not be regarded as the capital of the client if they require residential care in the future (only any income will be assessed under the current rules). The assets would, however, be assessed by the Local Authority if there had been a deliberate deprivation of capital in order to avoid care costs. This is a complex area and we’d recommend that you speak to one of our advisers if you need any more information on this subject.
Business property trusts
If you have business assets which qualify for business property relief, you need to consider establishing one or more ‘Business Property Trusts’ to protect your assets from inheritance tax and/or third party claims.
The way this works is by creating one or more trusts (depending on the value of the business property). Your will is then amended to ensure that any business property qualifying for business property relief will be paid to the trusts on your death rather than to your spouse or family members personally.
The trust can be discretionary with all family members potentially able to benefit and provides ultimate flexibility for the trustees and your family to manage the business in the future. Upon a sale of the business, your family would not need to undertake complicated inheritance tax planning. The trust may be liable to pay periodic charges and exit charges depending on the value of the trusts, however, the use of multiple trusts is normally sufficient to deal with this problem if necessary.
* The information on this website is based on our interpretation of the law and HMRC practice as at April 2016. Taxation legislation and HMRC practice may be subject to unforeseen changes in the future.