There has been some chatter on social media in recent times as to whether the trust is an outdated concept.
It is true that the tax advantages have changed and may indeed change again very soon. It needs clear thinking as to how the tax system works in the given family as it is not always straightforward.
It is also true that there is increased administration involved. There are tax and regulatory requirements, including a requirement for the identity of the settlor trustees and beneficiaries to be registered with HM Revenue & Customs.
Fines can be imposed for getting these wrong, so it is important that the requirements are understood and met and that any advisers used are qualified, competent and reputable.
These factors contribute to an increase in costs that can be particularly difficult for trusts holding primarily real estate, where there may be liquidity issues.
We now know there will be an Autumn Budget on October 30 in which inheritance tax and, perhaps, particularly trusts would appear to be areas where we could see tax changes most likely in the upward direction.
The benefits of a trust
So why would you use a trust? The answer comes from what a trust does.
A trust gives the ownership and control of the assets to the trustees but on the basis that this is only used for the benefit of the beneficiaries and that the trustees must act in accordance with the trust governing document (the deed). Trusts can be made during lifetime or as part of a will.
It is because of this separation of control and benefit, trusts (aka settlements) are a helpful way of managing assets for the benefit of someone without necessarily burdening them with the responsibilities of direct ownership.
This may be useful for children, young adults or the elderly where capacity may come into play.
In similar vein a trust can be used to offer a level of protection to a beneficiary who may be vulnerable for some reason or perhaps as part of marriage (or marriage breakdown) arrangements.
A further circumstance we see often is where a client wants to make gifts or general provision for their family but is not quite certain if there may be further beneficiaries (perhaps more grandchildren will arrive) or how a family is going to develop.
We are all used to seeing blended families, and the trust can offer a way to ensure that the “bloodline” is protected in the event of the breakdown of the blended family.
A trust is a long-term arrangement that is capable of lasting 125 years, so it can save future decision-making.
Where assets are placed in a trust, they no longer form part of the individual’s estate, and as such this could simplify or remove the need for a probate application on their death.
