Inheritance Trusts - Expert Tax and Estate Planning Advice Trusts - A Warning:
The Chancellor changed the rules on the taxation of trusts in his budget speech on 22 March 2006 to bring many trusts and their inheritance taxes liability in line with discretionary trust taxation.
Existing Trusts: This area is extremely complex and we suggest that you seek advice from us before amending any existing trust.
So What Has Changed Since 2006?
This means that any gifts to these types of trusts are now potentially chargeable to tax at the lifetime transfers tax rates when they are made.
This is a highly complex area of financial and tax advice.
A trust is where assets or property are held by one person in 'safe keeping' for another.
The maximum time a trust can run for is 80 years. Many have shorter terms and pay out due to conditions of the trust being met, for example, death, or the trust term is set to a particular term or age, for example, 18 or 21 if for children.
Monks started it all
Trusts have been established in the English common law legal system for over 1,000 years. They evolved broadly because monks who took a vow of poverty could not own property.
This principal of holding property 'in trust' for another is a very popular way today of passing on your wealth to others. Using a trust can reduce certain taxes on death as you no longer own the property as it is held inside a trust i.e. it is not yours and therefore not part of your estate on death for tax purposes.
Trusts give choice
A trust is also a way of choosing who will receive a certain benefit without giving that person immediate control of it.
A trust is set up by a trust deed and it is this document that sets out who is involved, who made the gift and who ultimately will get the property and the terms that apply to it.
2. Why Use a Trust?
There are many valid reasons why you should consider using a trust.
Much will depend upon the type of trust that best suits your needs, but we suggest the following can be of major benefit:
The list of benefits with a carefully selected trust can be endless.
There are even countries where if you place assets in trust before your arrive, the whole income drawn from them is tax free!
Equally though, we have to stress that selecting the wrong trust can have severe tax consequences.
3. Choosing Trustees
You cannot appoint anyone who is classed as a minor, i.e. a child under the age 18, as a trustee.
You can appoint someone over 18 and of sound mind to act for you. It is also possible for the life assured of a policy and a beneficiary of a policy to be trustees. If this is the case, it may be wise to appoint another trustee.
The maximum number of trustees on a policy is usually 4 but they can be changed by the settlor by using a Deed of Appointment.
When choosing trustees, you should bear in mind their duties:
We suggest for certain complex offshore and tax planning trusts, where an 'at arms length' management is required, you may wish to consider professional trustee management firms.
These are commonplace and many already have their own 'off the shelf' trust wording packages.
4. Setting up a Trust
Once you have decided on the most investment and trust type to arrangement to use in your particular circumstances, all you need to do is complete any investment forms and the trust deed form.
New and Existing investments - Take advice:
We strongly recommend that you take advice from us or a solicitor to make sure the trust is right for you.
Trusts are complex and you should seek advice in your particular circumstances as to what is appropriate.
5. Trust Jargon Explained
If you were to set up a trust you would be known as the 'settlor'. This means that you would provide the policy to be put into trust.
Certain people are appointed to manage the investment whilst it is in the trust. These people are known as the 'trustees'.
Trustees hold the policy within the trust for the eventual 'beneficiaries' who will receive the proceeds of the policy when a certain event happens, for example: when you die.