What are Trusts and Why would you set one up?

What are Trusts?

A common question we are asked a lot here at Haines Watts is “what are trusts” and are they even relevant nowadays. So we thought we would take a moment to outline some of the facts for you.

Why would you set up a trust?

Many people believe that trusts are a thing of the past and that only wealthy individuals can use them as a way of protecting their properties, large investment portfolios or other assets from the tax man. This is not the case, trusts can be amazingly simple and straightforward to use and we have listed below a few of the reasons you may wish or need to setup a trust: to control and protect family assets

• when someone is too young to handle their affairs
• when someone cannot handle their affairs because they are incapacitated
• to pass on assets while you are still alive
• to pass on assets when you die (a ‘will trust’)
• under the rules of inheritance if someone dies without a will (in England and Wales)

There are many different types of trusts, to name a few of the most common;

• Bare trusts
• interest in possession trusts
• discretionary trusts
• accumulation trusts
• mixed trusts
• settlor-interested trusts
• non-resident trusts

Most professionally drafted trusts are designed to be flexible and to accommodate the changing needs of their beneficiaries. As such, trusts remain an especially important part of planning for the future of your children and grandchildren as well as inheritance tax planning. Grandparents may also wish to use a trust and set it one up to help to pay for the grandchildren’s education and all relevant expenses that go along with that as well as gifting their assets to their children while they are around to see them enjoy it as well as reducing their overall estate value before they pass.

Trust Protection

Another purpose for setting up a trust is to protect a beneficiary from their own actions, especially if the beneficiary is under the age of 18 and not ready to handle the responsibility of such assets, or they may have special needs or a disability which requires them to have additional help with dealing with their finances. If a disabled person is unable to handle money easily, or if in receipt of a large capital sum would affect their entitlement to benefits, then a trust can ensure that trustees would manage the money on their behalf and their financial situation remains unaffected. If compensation or a damages award is received as a result of an accident or a negligence claim then a Personal Injury trust can ensure that the capital in the trust is disregarded for the purpose of ongoing welfare benefits and financial help towards long-term care fees.

Trusts & Assets

Another example to set up a trust is to protect your assets. Trusts can be used to protect any of the assets transferred into them from claims arising from third parties such as creditors or estranged spouses if the beneficiary gets divorced or falls on to hard times. Trusts in Wills are also often used by couples if one or both of them have children from a previous relationship and wish to make completely sure that their assets will pass to those children whilst providing an income for the surviving partner. So as you can see trusts can be of use for many different circumstances these days and are in some ways more necessary than ever in these complicated times.

Haines Watts

If you have an questions or would like to discuss setting up a trust then please get in touch. Our tax team can work with you to ensure everything is in place with regard to tax planning and compliance. We will ensure you understand the benefits and how the trust can work to help protect your assets and your family. If you any questions or would like to discuss setting up a trust then please get in touch with us now to find out how we can help.