Trusts have existed for centuries and remain an extremely effective way for families to preserve and manage their wealth for the benefit of their heirs.
Creating a trust, enables the person making the gift to attach certain conditions to it and with this element of control, comes peace of mind.
Trusts play a vital role in planning for the future, helping you protect your assets and making sure your intentions are crystal clear, both while you are still alive and after your death.
So, in what circumstances are trusts useful? Here are some examples.
Helping children or grandchildren.
Trusts enable you set an age limit on when children or grandchildren will inherit from your estate if you are worried that ‘too much, too soon’ would be bad for them.
You can also lay down specific conditions. For instance, you want to help your granddaughter with her university tuition fees but don’t want her spending the money on a gap year extended holiday. A trust enables you to make this clear.
Ensuring children from your first marriage don’t lose out because you remarry
An interest-in-possession trust is popular in the Wills of people marrying for the second time when both partners have children from a first marriage. It enables you to make sure that your spouse is provided for but that the children from your first marriage don’t see your wealth passing to the children of your surviving partner when you die.
Protecting a family company
You might want to give shares to your children or grandchildren but worry they might sell them on outside the family. You can avoid this by holding the shares in trust for the lifetime of the children and grandchildren. In this way they can benefit from the income but can’t control the voting power of the shares or get rid of them.
Helping a vulnerable family member
Unfortunately, this is a very complicated area of trusts law, but it is possible to set up a special trust for the benefit of a disabled beneficiary. Some trusts for disabled people or children get special tax treatment. These are called ‘trusts for vulnerable beneficiaries’.
For more information about interest-in-possession trusts, discretionary trusts, discretionary will trusts (which become effective only on your death) and vulnerable person trusts – as well as the tax consequences – please contact Wards Solicitors’ specialist trust lawyer, Mary Harty.
To read about the new “resident nil-rate tax band” or family home allowance, which came into force at the beginning of April, and its implications for discretionary trusts, please read our important article Make sure your beneficiaries don’t miss out under new rules affecting inheritance tax