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Trust Types and Benefits

A trust is needed when an asset cannot simply be handed over to the intended beneficiary. A trust is a formal arrangement where a settlor transfers an asset to the ownership of the trustees. The trustees can then manage those assets on behalf of the beneficiaries for a period of time specified in the trust. Parts to organising the trust include,

  1. The Settlor
  2. The purpose of the trust
  3. What assets will be transferred
  4. Who are the trustees
  5. Who are the beneficiaries
  6. The terms and conditions
  7. The duration

Types of trust are

  • Flexible Children’s Will Trust
  • Life Interest Will Trust
  • Discretionary Business Trust
  • Discretionary Nil Rate Band Trust
  • Discretionary Trust of Residue
  • Inter vivos trusts that come into operation as soon as signed rather than on death (testamentary trusts, as above)

There are many purposes and reasons to create a Trust some of the most common include

  • Avoiding potential care home fees
  • Avoiding side-ways disinheritance
  • Avoid Inheritance Tax, IHT
  • To protect minors when inheriting
  • To protect disabled beneficiaries: from losing means tested benefits and if they lack capacity to manage inheritance

Of these the most common reasons to make a trust,

Sideways Disinheritance. This is a common concern for example, Husband remarries and subsequently dies. He leaves everything to his new wife in his Will and she leaves everything to her children. His children from the previous relationship will get nothing if she writes them out of her Will.

Disabled Children. Trusts are needed to protect vulnerable beneficiaries who are unable to make their own decisions. It also protects them from the risk of losing means tested state benefits when they inherit.

Young Children. Particularly useful for parents of minors. If they need to live with guardians a trust protects their assets as funds can only be used for their benefit. Without a trust the guardians could use the money on anything they chose.

Substantial Estates. Helps to minimise Inheritance Tax liabilities.

Preserve Legacy. A trust is a way of preserving legacy for your loved ones by avoiding future care home fees.

A trust is often mistaken as something you only need if you have a substantial estate or want to reduce Inheritance Tax but in fact they are useful for many people of all circumstances. Speak to us today and we will advise if a trust is right for you and what the best options are.

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