When to set up a trust fund
Setting up a trust fund can be useful in many situations, protecting your assets and ensuring that they can be used appropriately by your beneficiaries at the right time. Many people also set up trusts as part of their inheritance tax planning and to minimise conflict related to their will. If any of these requirements apply to you, you may benefit from considering the possibility of setting up a trust.
A trust is the formal transfer of assets (property, shares or cash) to a select group of people, called trustees, who hold the asset on behalf of beneficiaries. The Trustees control the asset, but cannot benefit from it personally as they hold it for the beneficiaries’ benefit. (A trustee can also be a beneficiary, and, in that case, they could benefit from it).
Why set up a trust?
A trust fund allows individuals to protect their assets and control how they are used after they have been given away. This level of control can give you peace of mind that your estate will be appropriately managed in the future, particularly in the following circumstances:
- To protect assets from beneficiaries’ partners or creditors
- To save inheritance tax
- To protect assets from the costs of nursing care
- To protect beneficiaries who are too young to receive an asset straight away, are infirm or are not good with money
- To avoid the need for a probate upon your death, keep the value of assets private and not on the public record, as would be the case with a probate application.
- To potentially minimise conflict because trusts set up during a lifetime are generally more difficult to challenge than a trust set up in a Will.
What are the different types of trust funds?
When to set up a trust fund isn’t the only question you need to think about, as you also ought to consider what type of trust fund would be best. The type of trust set up will depend on the circumstances in which it is created and its intended purpose. Given that there are a number of different reasons why a trust might be suitable for you, there are also a number of different types of trust that you can utilise. These include:
- Life Interest Trusts – this type of trust fund is particularly of interest to couples owning their home together who wish to ensure that the first to die’s share is ring-fenced from any means tests the survivor is subject to.
- Discretionary Trusts – a discretionary trust is especially useful to those who have assets they do not need during their lifetime to maintain their standard of living and which they wish to set aside for their family to use during their lifetime, after their death and going forward for generations to come.
- Will Trusts – to delay inheritance until a later date.
- Personal Injury Trusts – these trusts can be used to ring-fence compensation monies from welfare and other benefits
- Spendthrift Trusts – a discretionary trust in which you can specify how trust assets are to be distributed, giving reasonable instructions to your trustees as to how and when to pass over funds to the named beneficiaries. This can help if beneficiaries struggle with addictions to drugs, alcohol or gambling as the money can be protected for specific purposes only such as paying rent.
- Special Needs and Disability Trusts – these trusts can enable those with special needs to retain financial support without endangering their access to welfare benefits.
- Educational Trusts – specifying that trust assets can only be used for educational expenses for your loved ones.
- Life Insurance Trusts – to ensure that policy proceeds are paid to beneficiaries without the value being added to your estate for inheritance tax purposes.
How to set up a trust fund
If any of the reasons to set up a trust fund outlined in this article apply to you, it is important to plan carefully and set up the trust at an appropriate time. Trusts can be set up in your Will, or by separate deed during your lifetime.
Setting up a trust offers opportunities to manage your family’s future security in a tax-efficient way, ensuring your hard-earned assets go where they are needed most. The setting up of a trust can be complicated so you need an experienced and professional team on your side.
The specialist wills, trusts and probate team at GA Solicitors has years of experience advising individuals on the most important way to protect their assets and ensuring that inheritance tax considerations are made. For a no-obligation discussion about when to set up a trust fund and whether this is an appropriate step for you, contact me directly by emailing jonathan.hall@GAsolicitors.com or call the team on 01752 203500.
All content on this website (inclusive of guides, blogs and imagery) is strictly copyrighted by Gill Akaster LLP, trading as GA Solicitors. It is not to be used by any third party without prior contact and permission. Any requests for content should be sent to katy.mckenna@GAsolicitors.com.