TRUSTS EXPLAINED I HOW TO PROTECT FAMILY ASSETS

Trusts Explained: How to Protect Family Assets

Understanding Trusts

A trust is a legal arrangement in which one party, known as the settlor, transfers assets to another party, the trustee, to manage for the benefit of a third party, known as the beneficiary. Trusts are commonly used in the United Kingdom for multiple purposes such as managing and protecting family assets, ensuring property succession, and for tax planning. By placing assets into a trust, the settlor effectively relinquishes ownership, although they can still maintain some control over how the assets are managed.

Types of Trusts

There are several types of trusts in the UK, each serving different purposes:

• Bare Trusts: Here, the beneficiary has an absolute right to the assets and income, and the trustee only holds the property in name.
• Interest in Possession Trusts: These allow the beneficiary to receive income generated by the assets immediately, though they may not necessarily own the underlying assets.
• Discretionary Trusts: The trustees have discretion over how to distribute income and capital to the beneficiaries.
• Accumulation Trusts: These trusts accumulate income until it can be used either for the benefit of the beneficiaries or added to the trust capital.
• Life Interest Trusts: Often used in inheritance planning, they allow one beneficiary to enjoy the assets during their lifetime, with the assets passing to another beneficiary after their death.

Benefits of Setting Up a Trust

Setting up a trust can provide several advantages:

• Asset Protection: Trusts can protect family assets from potential creditors, divorce settlements, or mismanagement by inexperienced beneficiaries.
• Tax Efficiency: Trusts can be used for inheritance and capital gains tax planning, potentially reducing the tax burden on the estate.
• Controlled Distribution: Trusts allow for controlled distribution of assets, ensuring they are used in a manner consistent with the settlor’s wishes.
• Continuity: Trusts ensure continuity in asset management and distribution after the settlor’s death.

Setting Up a Trust

To set up a trust in the UK:

1. Consult a Solicitor: Seek professional legal advice to understand the best type of trust for your situation.
2. Create a Trust Deed: This legal document sets out the terms of the trust, including the roles and responsibilities of trustees and the rights of beneficiaries.
3. Identify Trustees and Beneficiaries: Choose trusted individuals who will manage the trust and benefit from it.
4. Transfer Assets: Move the specified assets into the trust in accordance with the trust deed.
5. Register the Trust: Register the trust with HMRC and comply with any tax obligations.

Conclusion

Trusts are a highly effective tool for protecting family assets and ensuring they are managed and distributed according to your wishes. Whether you are aiming to safeguard wealth, control how assets are passed on, or minimise tax liabilities, setting up a trust can provide peace of mind and financial security for your family in the United Kingdom. Ensure to seek professional legal advice to tailor a trust to meet your specific needs.