LR Estate Planning | Trust Funds

A trust is traditionally used for minimising estate taxes and can offer other benefits as part of a well organised estate plan. A trust is a fiduciary arrangement that allows a third party (trustee or professional trustee), to hold assets on behalf of a beneficiary/beneficiaries. The primary purpose of placing assets into a trust is to avoid the expense and delay of the probate process. Remember, anything that you own in your name at the time of your death will go through probate.

One main difference between a will and a trust is that a will comes into effect only after you die, while a trust takes effect as soon as it’s created. A will is a document that dictates who will legally receive your assets after your death, and it appoints a legal representative (executor) to carry out your wishes.

One of the main advantages of trusts is that they can allow you to put conditions on how and when your assets are distributed after you die. For example, stipulating that money left to a grandchild can only be used for their first home deposit or for university fees. By using a trust, you are also able to reduce estate and gift taxes. This means that you are now able to distribute assets to heirs efficiently without the cost, delay and hassle of probate.

Certain trusts will allow you to do certain things, and we can choose from a range of trusts best suited to your. Talk to one of our expert estate planners about what it is you would like to achieve.

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What is a trust?

A trust is a structured way of looking after your finances, placing the money in the right hands at the right time to make your estate as tax-efficient as possible. It also protects against intergenerational inheritance tax by ringfencing the money away from their estate while allowing them to access the money when needed.

How does a trust work?

Certain roles are needed for a trust to work. A settlor, trustee(s) and beneficiaries are the vital roles. The settlor will put money into the trust, where it is then looked after by the trustees, for ultimate use of the beneficiaries.

Who needs a trust?

Anyone who has what is classed as a ‘high value’ estate. An estate exceeding £325,000 will cross the threshold at which inheritance tax (IHT) comes into play, and this is when a trust should be considered.

Can I have more than one trust?

A settlor can have as many trusts as they like. £10 is the de minimus (minimum) payment required to open a trust.

Who can be a trustee?

Anyone over the age of 18 who has capacity and isn’t bankrupt can be a trustee.

Can I be a trustee of my own trust?

You can be a trustee of your own trust but you can’t be a beneficiary of it.

Should I use a professional trustee and what is the benefit of having one?

The benefit of having a professional trustee is that if your chosen trustees opt out or need professional guidance and advice concerning the trust, they will have experts at their disposal..

Can I put my house into trust, if there is still a mortgage?

Yes, but the executor will have to pay off the mortgage on the estate because it is a debt. All debts must be cleared first, and any money left after all the debts on the estate have been paid will be left to go into the trust.

When does the property go into the trust?

Depending on what type of trust you use, it depends on what time the trust comes into effect. Your estate planner will explain what type of trust will be best for your needs.

Can I move once the property is in trust?

You are free to move house once the trust has been set up. Having your property in trust will not restrict you from moving at any time.

Can I take a loan out on the property after I have set up a trust?

Depending on the type of trust used, there may be restrictions as to what can and cannot be done involving the property. Talk to us to obtain expert advice on this.

Who is in control of the trust?

As a settlor, you hand over the assets to your appointed trustees, these are the people who will look after the assets. However, you as the settlor cannot benefit from the assets within the trust.

Can you fill a trust fund up?

You can inject as much money into a trust as you desire, but the purpose of a trust is to streamline your estate, or make it as tax-efficient as possible. Remember, trusts are still liable to tax. This is why we would advise that clients create more than one trust when the need arises.

How long have trust funds been around?

Trust funds have been around for hundreds of years. They were originally set up by knights to ringfence and protect their ownership of land before they went off to fight. Their purpose was to protect the land and wealth they left behind. Trust funds have evolved since then but the core principle has remained unchanged.

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