A trust is traditionally used for minimising estate taxes and can offer other benefits as part of a well-thought-through estate plan. A trust is a fiduciary arrangement that allows a third party, or Trustee, or professional Trustee, to hold assets on behalf of a Beneficiary or Beneficiaries. The primary purpose of placing your assets into a trust is to avoid the expense and delay of the probate process. Keep in mind that 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 you create it. A Will is a document that directs who will receive your assets, (such as your property at your monies) on your death and it appoints a legal representative (your executor) to carry out your wishes.
One of the main advantages of trusts is that they will allow you to put conditions on how and when your assets are distributed after you die. For example: “you can only use the money for education”, or “you can only use the money for medical care”. By using a trust, you are 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, here at LR Estate Planning we have a wide variety of trust on offer. Talk to your LR Estate Planner about what it is you would like to achieve, once your adviser has a better understanding of situation, they will be able to advise you on the most effective way of achieving your goals.
What is a trust?
A trust is a 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 keeping the money out of their estate while allowing them to access the money when needed.
How does a trust work?
For a trust to work you will need: A Settlor, Trustees and Beneficiaries. The Settlor will put money into the trust, where it is then looked after by the Trustees, for the Beneficiaries.
Who needs a trust?
Anyone who has what is classed as a high value estate. An estate worth £325,000 or more will cross the threshold at which inheritance tax (IHT) is incurred.
Can I have more than one trust?
Yes, a person can have as many trusts as they like. To activate a trust, you only need to place £10 in a trust.
Who Can be a Trustee?
Anyone over the age of 18 how has capacity and haven’t been made bankrupt.
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 guidance on what to do with the trust they will have someone in the wings to give advice if necessary.
Can I put my house into trust, if I have a mortgage on the property?
Yes – but the Executor will have to pay off the mortgage on the estate because it is a debt on the estate and all debts must be paid off first. 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 sort of trust you use, it depends on what time the trust comes into effect. Your estate planner will explain what sort of trust will be best for your needs.
Can I move once the property is in trust?
Yes you can move home once the trust has been set up. Having a trust on your property will not restrict you from moving from the property at any time.
Can I take a loan out on the property after I have set up a trust?
Depending on what sort of trust you use, there may be restrictions as to what can be done with the property. Talk to your Estate Planner and they can liaise with the Financial Advice department to give you the best advice.
Who is in control of the trust?
As a Settlor you hand over the assets to your Trustees, who are the people who will look after the assets. However, the Settlor cannot benefit from the assets within the trust.
Can you fill a trust fund up?
You can put as much money into a trust as you like, but the purpose of a trust is to streamline your estate. This is to make your estate as tax-efficient as possible – trusts are liable to tax. This is why we would advise that clients create more than one trust when needed. To make the estate as tax efficient as possible
Are trust funds legal?
Yes, trust funds are perfectly legal.
How long have trust funds been around?
Trust funds have been around for hundreds of years. They were originally set up by knights to protect their land before they went off to fight in wars. Their purpose was to protect the land and wealth they left behind. Trust funds have evolved since then.