There has been some chatter on social media amongst the professional advisory community in recent days as to whether the Trust is an outdated concept for private clients.
Given the change in government and the autumn statement expected mid-late September, you might also be wondering whether a Trust is still the right mechanism for your family wealth or whether to set one up.
It is true that the tax advantages are changed, and 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 with trusts. It’s important to make sure that tax and regulatory requirements are understood and met and that any advisers used are qualified, competent and reputable. These factors do contribute to an increase in costs, which can be particularly difficult for trusts holding primarily real estate where there may be liquidity issues.
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.
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 a 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 which 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. Trusts can also be used to help pay for the education costs of children and grandchildren.
Although there are tax issues on creation and operation of the trust, there are presently some ways in which a trust can secure an existing tax advantage. Settling the shares of a family company before a sale, for example, might preserve the effects of the existing business property relief for example. It can also be used as an alternative to a complicated share restructuring exercise to provide different people with different interests in the shares.
Trusts are often included in pensions and life insurance policies and for good reason but it is important that everyone involved understands what it is doing and why it is there.
On balance the Trust does still in my view retain a place in the toolkit of arranging a family’s financial affairs but it should be used carefully and after full consideration of all the surrounding circumstances and after answering the question Why?
If you would like to discuss an existing Trust or are considering setting up a Trust, talk to our team today.
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