Within the umbrella of estate planning, there is more than just wills to consider. If you’re reviewing your estate planning, you might also want to consider setting up a trust. If you need further reassurance and guidance on why and how setting up a trust could benefit you and your loved ones, read on.
Why set up a trust?
There are many potential benefits to setting up a trust when considering the distribution of your estate. When considering estate planning, you will wish to consider how best to support your loved ones in the future, taking into account a variety of factors that may be in place or may occur in the future.
Inheritance Tax and Gifting
The inheritance tax threshold is currently £325,000. Any assets beyond the total value of this will incur a 40% inheritance tax on the owner’s death. The stark difference between how much your loved ones could be left with is significant, so if your assets including cash, property and investments will exceed the £325,000 tax-free threshold, now is the time to start thinking about how best to plan for inheritance tax savings wherever possible.
The current inheritance tax rules allow you to gift monies away to individuals and so long as you survive seven years (and retain no benefit from the assets) then the value of these gifts (also called Potentially Exempt Transfers or PETS) will fall outside your estate.
However, there may be reasons why you don’t wish to gift assets outright to your beneficiaries, for example, they are young, or are not particularly good with money, and this is where trusts can help.
Trusts can be used to:
- Put money aside for relatives’ education fees or house deposits
- Keep assets safe on behalf of very young, vulnerable or disabled family members
- Set aside assets safely and for specific people if a relationship were to break down
- Allow one person to benefit from the assets during their lifetime but protect the capital value of the assets for another generation on the original beneficiary’s death
- Ensure provision for children from previous relationships
The taxation of trusts is complex and when setting up trusts in your lifetime, as a general rule, these are treated as immediately chargeable transfers or ICTS. You should have the benefit of your nil rate band (currently £325,000) available provided that you have made no other gifts or trusts in the 7 years prior to the current gift in question. If not then inheritance tax payable at the lifetime rate of 20% may be due if the assets gifted to the trust exceed the nil rate band available to you at that time. You would therefore be advised to seek specialist tax advice before finalising any gifts to trusts.
What happens with assets in a trust?
By putting assets into a trust, you no longer own them. While they are kept safe for the beneficiaries and managed by the trustees, these assets may be exempt from inheritance tax upon death provided you have satisfied the rules mentioned above.
By providing clear guidance as to how the trust should operate you can ensure that the assets are looked after to benefit your loved ones in the best possible way at the most appropriate time.
Who can help me set up a trust?
Solicitors who specialise in trusts can help with setting one up and can provide recommendations or suggestions for your estate based on your circumstances. Whether you want to just set up a trust or would like to review your whole estate plan, our specialists can support you with all aspects as necessary.
To find out more, contact our team on 0161 969 3131 or fill in our contact form and we will be in touch as soon as possible.