Trusts are often seen as complicated arrangements or indeed only for the wealthy, but this is not so.
A trust can be used to ensure that a particular asset can be passed to the person that you wish for it to go to, and it can also be an effective way to provide for your loved ones when you die, it can also keep the tax bill to a minimum.
The most effective planning tool in the inheritance armoury is the Trust.
Trusts may sound complicated, but they are simply a way of passing on wealth and obtaining some control over how it is used and who it goes to.
Trust can be set up to:
Protect your assets.
Provide for income for loved ones.
Plan to avoid inheritance tax in a perfectly legal arrangement.
Discretionary trusts are the most commonly used type, largely because of the tax advantage:
Assets put into these trusts escape inheritance tax completely for their entire duration up to 125 years.
Along with your trustees, you will have full flexibility over deciding who gets what and when. On your death the control passes to the remaining trustees. That is why so many of those who set up trusts accompany them with an Expressed Wish Letter, which gives trustees guidance on what you as the ‘Settlor’ would have wanted. Whilst these are not binding on the trustees, they are, in practice usually followed.
It is sometimes not understood that, the person creating the trust can itself be a trustee during lifetime trusts. Clearly the position follows that if it’s to also provide for post death planning then upon the principal’s death the remaining trustees will move forward with the trust provisions.
Not surprisingly, the tax breaks on Discretionary Trusts are not completely unrestricted – so it is worth seeking advice.
Before considering Discretionary Trusts, there is a range of other exemptions and allowances that should be used fully. But the first action is simplest; make a will, this will avoid a complicated administration burden as well as the potential for larger than necessary tax bill.
There is an annual allowance of £3000 in each tax year: indeed, you may also give away as much as you want tax free, providing you expect to live seven years after the gift; die before that and you will have to be charged, although your bill could be reduced by what is known as ‘Taper Relief’ under which the rate of tax is gradually reduced on the years that you survive.
Using trusts can be complicated and you should take advice.
Should you require any assistance then please contact us.