When it comes to lowering your Inheritance Tax payment, setting up a trust is one of the most effective strategies to reduce the amount of Inheritance Tax your estate will face after you pass away. If you have no prior experience with trusts or have never considered using them, continue reading to learn how trusts can assist you.
What is the definition of a trust?
A trust is a legal arrangement that allows you to place property, assets, investments, or even cash in the hands of a third party (or parties) who will protect the transfer for your designated beneficiary. Trusts are frequently used to set aside cash for children under the age of 18 or to provide financial support for persons who require long-term medical care.
What is the purpose of a Trust?
When you put assets, property, investments, or cash into a trust, you no longer own them. Certain conditions must be met for this to be the case, but if they are, it means that when you die, the value of the assets in the Trust will not be included in the calculation of your Inheritance Tax liability.
Because the assets belong to the Trust and not to an individual at the time, they are not included in anyone’s estate. Young or fragile beneficiaries who are either unable to deal with the financial rigours of an estate or who are at risk of being scammed or conned out of their assets are frequently protected by trusts.
When you create a Trust, you also decide when the beneficiaries will receive the Trust’s assets. This implies you can put in place conditions to protect your beneficiaries.
What are the different types of trust?
Though trusts are most typically used to protect assets for children and the vulnerable, there are a variety of trusts that you can use to split your estate among your beneficiaries and reduce your Inheritance Tax obligation.
The following are some of the more typical Trust options:
A bare trust is a simple trust that immediately transfers assets to the beneficiary if they are 18 or older.
The beneficiary of an Interest in Possession Trust receives an income from the Trust but has no ownership rights to the assets that generated the revenue.
Discretionary Trust – the trustees have discretion over how the assets are distributed to the beneficiaries.
The term “mixed trust” refers to a trust that includes elements from several separate trusts.
Trust for a Vulnerable Person – If the beneficiary is a vulnerable person, any income tax or capital gains tax that may be required is normally taxed at a lower rate.
Non-Resident Trust – a trust for persons who do not live in the United Kingdom.
Creating a Trust
It’s simple to set up a trust, and you can do so by simply inserting one into your Will. To create a trust, simply follow these steps:
Make it clear which assets belong to the Trust.
Choose a trustee (normally the Executor of the Will if the Trust is being written into it, but you can choose anyone you trust to be a trustee).
Name the people who will benefit.
Indicate when the Trust goes into effect (is it immediate, or does it take effect only when you die?).
Do you need assistance establishing a trust or including a trust in your Will? To learn more about how Braintree Wills may assist you, contact us now.