Trusts are a popular way to manage, protect, and distribute wealth across generations. They’re legal entities that hold onto and look after assets on behalf of at least one person.
A trust can offer protection in many ways. For one, it can help ensure assets, whether cash or a business, stay within your family by guaranteeing certain amounts are set aside for children or grandchildren, say, and are unaffected by big family changes like marriages down the line. And since assets in a trust are protected from any bankruptcy claims, they’re insulated in case other financial troubles come along.
Some trusts can be used to help reduce or eliminate any inheritance tax due on your estate when you pass away. That’s because seven years after putting assets into a trust, they stop being considered part of your estate regarding inheritance tax calculations.
When you pass away, inheritance tax and probate fees need to be paid by those left behind before they can access the estate. Assets in a trust can be accessed immediately to help pay those costs, easing the financial strain on your family. That’s one reason why life insurance policies, which can be used to help pay any inheritance taxes, are often put into a trust.
To set up a trust, you’ll need:
You can set up a trust now, at any point in the future, or write one into your will. The latter might be preferable for some because once assets are placed into a trust, usually, you can’t change your mind and take them back out. You should also have a firm idea of why the trust exists, who the beneficiaries will be, and be prepared to choose trustees with suitable experience and expertise.
A trust deed is a legal document that sets out the terms of the trust. Once established, the settlor transfers assets – property, cash, shares, and so on – into the trust. Keep in mind putting assets into a trust can create immediate income tax, inheritance tax, and capital gains tax charges – and certain trusts need to be registered with the HMRC’s Trust Registration Service. Given the rules vary across different types of trusts, you might find it beneficial to check in with your financial advisor.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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