There are a number of different types of trust that you can set-up to help manage your estate and avoid inheritance tax when you die, but you may be wondering why you need trusts in the first place. We’ve put together this guide to help you understand how trusts can work for you and your Will.
What is a Trust?
Trusts are a legal arrangement where trustees hold assets for a testator for their benefit or the benefit of their beneficiaries.
When you Need a Trust – Children
There are a few situations when you might want to create trusts to protect your assets for your children, especially if they are under the age of 18. However, if you do not make trusts for your children under the age of 18, and you require one, the Court will create one for you. They will appoint trustees and dictate the terms of the trust. Often these terms and trustees may not be in line with your wishes, who you would have chosen as the trustees and different terms than you would have chosen.
If you have children under the age of 18 or are likely to have children under the age of 18 when you die, then it is best to write one into your Will, appoint the trustees and dictate the terms. A trust that is created by your Will is known as an express trust. There are two types of express trusts. One is an absolute trust, and the other is a discretionary trust.
An absolute trust is one that not only specifically identifies beneficiaries, and outlines exactly what each of those beneficiaries will receive as part of that trust.
A discretionary trust is one in which the trustees that have been appointed to oversee the trust have the power to distribute the assets of the trust at their discretion to the beneficiaries. They can choose the proportions of the income and assets in the trusts that each beneficiary is awarded.
For Spouse that is not the parent of your children
You may also want to create an absolute trust if you have a spouse or partner that will survive you who is not the parent of your child or children. In this instance, the trust would specify that your spouse or partner is to be a life beneficiary of the trust and is appointed as one of the trustees. One of the other trustees should also be one of your children who will be one of the ultimate beneficiaries. You can also appoint a third trustee to oversee the trusts to maintain a balance of power if you think there may be problems between your spouse and child.
This ensures that your spouse or partner is provided for throughout their lifetime, but the bulk of your estate will ultimately benefit your children.
Other Reasons to Create a Trust
Other reasons to create trusts as part of your Will include:
– To allow someone to live in one of your properties for their lifetime when you cannot give them the title deeds. This could be a tenant in a house or someone who is renting a farm from you and working it to provide their income.
– To hold property for children
– To hold financial assets, shares, a business, or land of a company for the benefit of those who are not directors or managers of the company.
If trusts are noted as part of the Will, then as soon as probate is granted to the executor of the estate, the assets noted in the trusts in the Will automatically pass to the trustees named in the Will. This creates a trust. The trustees must register the trusts with HMRC and fill out the forms that are sent to them. The trusts are subject to income tax and capital gains tax.
Need help writing a trust into your Will? Contact our Will writing experts today to find out how we can help you put your affairs in order.