The Importance of Trusts

Trusts play an important role with many families of today, protecting wealth for generations to come – and as their attractiveness increases, their value will continue to grow.

The beneficiaries of trusts can thank the Romans and the Crusaders for the development of this very particular way of holding assets, and passing them down the generations.

The Romans developed the basic idea and then, as they left for the Holy Land, the Crusaders expanded the trust principal to enable them to undertake long voyages without losing their land.

In the modern world trusts still play an important role in many families. In fact, as family structures become more complicated – with many family members increasingly spread around the world, people living longer and more getting divorced, it could be said that the value of the trust continues to grow. So, what are the pros and con, and what are the points you should watch out for?

The main advantage is that the donor (a person making the trust), can make gifts without restricting themselves too much as to who the recipients will be. Someone with children and growing numbers of grandchildren, can set up a trust which will, eventually, pay out to family members who are yet to be born.

Similarly, trust assets can be protected by excluding descendants that are in danger of going bankrupt or from getting divorced or from being potential beneficiaries.

Divorce is one of the most common threats to families who want to pass on money. The problem is that someone receiving money from their parents can find that they have to give away half of those assets to their former partners in a divorce settlement. And personal bankruptcies which are growing more common with over 100,000 per year in the UK present similar problems.

Trusts can be used in a way to save Inheritance Tax, although the amounts protected are being reduced in some cases. Putting assets into trusts gradually removes them, over a seven-year period, from the individual’s estate at date of death, and this can cut the tax bill, although there are anti-avoidance rules that must be navigated.

Another advantage of the trust structure is speed as they can pay out immediately after the settlor (the person who makes them or sets them up), dies. In contrast to Wills where delays of several months if not longer are commonplace.

If you require further information, please do not hesitate to contact us.