Trusts and estate planning: what needs to be considered?

Trusts and Estate planning: what needs to be considered?

When it comes to planning how you’d like to pass on the assets and capital in your Estate, there are some important financial tools which you can use. Trusts can be very effective when undertaking Estate planning, helping you save tax and get your financial affairs in good order.

What is a Trust?

In essence a Trust is a legal arrangement which holds your assets in a secure place for the benefit of your beneficiaries. It’s sometimes helpful to think about them as a figurative security deposit box or treasure chest, in which you can place your assets to keep them protected and possibly shielded from certain taxes. Tax saving is not the only reason why Trusts are created. The main purpose for some people is to protect funds for vulnerable beneficiaries including young children, those with a disability or others who find managing money difficult.

Trusts can also help you maintain control over the assets you’ve gifted. A good example is through your Will. If you’ve remarried and want to provide a home for your spouse but ultimately let any children from your first marriage inherit the property, a trust can facilitate this, enabling your spouse to continue living in your shared home until their death, when it then passes to the children from your first marriage.

Trusts are also useful when it comes to probate. On average probate in England and Wales takes around nine months to a year to complete, which can mean there are significant delays in your Estate transferring. Generally, assets held in a Trust sit outside of your Estate, allowing your executors to access them without any delay.

Trusts versus Wills

Trusts and Wills are two different things – but both are powerful tools when Estate planning. Trusts hold specific assets that are held by appointed Trustees and will be distributed in accordance with the terms of the Trust. Wills contain your personal set of instructions which dictate how you’d like your Estate (all those assets that are in your name at the date of your death) to pass on. A Will can also appoint guardians to minor children and detail funeral wishes, something a Trust can’t do. The two tools can work together, but neither can do the other’s job!

Inheritance Tax – Trusts and Estates

Trusts can be very effective when it comes to Inheritance Tax (IHT) planning. IHT charges can be as high as 40%, although there is a tax-free allowance which protects the first £325,000 of any Estate. Using a Trust allows you to ringfence your assets outside of your IHT chargeable Estate, as long as various conditions are met. You can also still maintain some control over those assets by acting as one of the Trustees, if created during your lifetime.

Inheritance Tax Planning Trust

An Inheritance Tax Planning Trust is a practical tool to help ensure you and your beneficiaries don’t face a very large IHT bill once you pass away. This can help avoid a situation where your heirs are forced to sell property and investments to fund an IHT bill. Ultimately it can help make sure that they inherit the assets you want them to inherit. As noted above, using a Trust can also help couples manage how the surviving spouse can remain in the family home but still allow the value of the property to be passed onto younger generations.

Support with Trusts in your Estate plan with The Fry Group

If you are considering using a Trust, it is advisable to consult an expert. Setting up a Trust is a complex process, and you will need to ensure that all the correct legalities and proper documents have been set up. We can help with any aspect of your Estate planning, including reviewing an existing Will or Trust arrangement, or drawing up new ones. To discuss your estate planning with one of our team please contact your nearest office.

Would you like to find out more?

We are here to help with your financial planning requirements. For more information, whatever your circumstances, please contact us today.