Trusts are an important part of estate planning as they allow people to ensure assets can be ring-fenced and distributed as they would like.

1. Managing Trusts

Trusts are flexible, allowing people to tailor them to the needs of their own situations.  

For example, Is there a beneficiary who doesn’t have the capability (minor of disabled) or desire to manage the assets? Or do you not trust the beneficiary to own the asset outright (perhaps because they are spendthrifts)?  As a beneficiary is fully entitled to the proceeds under an absolute or bare trust (where the beneficiaries cannot be changed), there is no such protection.

Could there be a possible conflict between heirs when an estate is settled (perhaps between children from different marriages)?  Through a trust, managed by trustees, those assets can be distributed to the beneficiaries over time.

2. Protecting Assets

Placing assets in certain types of trusts can protect them from creditors, marriage breakdown or from those who might influence beneficiaries.

A discretionary trust offers protection as the beneficiary has no right to the proceeds until the trustees appoint them.  But as a beneficiary is fully entitled to the proceeds under a bare trust, there is no such protection.

3. Gifts

Certain trusts offer the flexibility to make a gift into trust, for chosen beneficiaries, but still continue to receive a benefit.  Where the settlor (the person setting up the trust) is worried about a beneficiary not being mature enough, certain trusts allow the trustees to retain control beyond age 18 but without it being or becoming a discretionary trust.  This allows funds to be distributed to the beneficiary in smaller regular amounts instead of one large lump sum or at periods beyond age 18. 

4. Minimising Tax

Many people believe that the main reason for using a trust is to mitigate or eliminate inheritance tax.  Simply put, assets that are placed into trusts are given to the beneficiaries and are no longer part of the settlor’s estate, provided the settlor survives seven years.

Even if the settlor dies within seven years only the value of the gift is included within their estate.  This means that from day one any growth on monies invested are outwith with settlors estate for the Inheritance Tax calculation.

5. Confirmation of Estate/Probate

As assets within a trust do not belong to the settlor, in the event of their death the value of the asset is not included in the estate for probate purposes, which can mean substantial savings in time, legal fees and paperwork.

When dealing with life policies the provider will be able to pay the death benefit quicker as they can pay the surviving trustees (legal owners) and do not require the confirmation of estate/grant of representation – this can happen in a matter of  weeks.

Trusts are set up for a variety of reasons and are a useful estate planning tool.  Choosing the right one is crucial and this is where professional advice is essential.  McCrea Financial Services have specialist advisers to help with Trust Planning as part of your overall financial aims and objections and provide Regular Reviews to meet any adjustments you may want to make to match your circumstances.  

Why not call us on 0141 572 1340 or email if you would like to find out more.