Setting Up A Trust For Your Family
A trust is a great way of protecting the future of you or a loved one. There are many different types of trust and they can get quite complicated. Here we look at what a trust is, why you might need one and how you’ll be able to set one up.
What is a trust?
A trust is a way of setting assets aside for the future. It’s where someone effectively gives up ownership of an asset and it’s held until specific terms are met. This could be until a child turns 18 or perhaps set aside to avoid a higher inheritance tax bill.
There are three main persons who play a key part in any trust:
Settlor – This is the person setting up the trust and relinquishing control of their asset.
Trustee – The trustee is responsible for the managing of the trust and acting in accordance with the rules that have been set out.
Beneficiary – A beneficiary is the person who will profit from the trust. A trust may have numerous beneficiaries, such as if money has been left for several grandchildren.
While they are usually separate people, it doesn’t always have to be that way. A beneficiary may be the settlor, such as when a trust has been set up for long-term medical care. Also, a trustee can be the beneficiary but this isn’t advised.
How to set up a trust
There are many different types of trust out there and their wording needs to be precise which is why it's always the best idea to use a solicitor. This can usually be a costly process and therefore it's important to know what assets you want to protect and how you want the trust to be run before you consult with a professional.
Here we go through the steps you’ll go through when setting up a trust.
Deciding on your assets – The first step you need to take is deciding which assets are going to be included. This could be physical assets such as property, possessions such as artwork or a monetary figure.
Appointing a trustee – You need a trustee to oversee the trust and manage it based on the terms set out. You can have a friend or family member act as the trustee but many prefer to use a more experienced option such as a bank, financial advisor, accountant or solicitor.
Choosing a beneficiary – Here you will set out who will profit from the trust. If there is more than one beneficiary then you'll have to be clear about what percentage of the benefits each beneficiary will be entitled to.
Stating the terms – The terms of the trust will decide how it will be managed. You’ll need to set out the overall objectives of the trust, how the beneficiaries are going to be paid, when the trust is going to be settled and also any rules of the management of the trust.
Should I set up a trust for my family?
There are many advantages to a trust and even though they can be expensive to set up, for many, they are a worthy investment. One of the benefits is that they allow you to protect assets. As you will be effectively giving up ownership of them, you can avoid them being targeted by creditors or anyone else making a claim to the asset.
Another huge advantage of that is the avoidance of inheritance tax. If you are giving up ownership of these assets then they won’t count towards your inheritance tax threshold which could leave your family with a lot more than they otherwise may have been left with.
Protecting your future is also a great reason to get a trust. This could be for your future medical needs or perhaps setting money aside for a grandchild until they turn 18. A trust can give you peace of mind that your future has been catered for. There are a few other good reasons to set up a trust such as avoiding probate, avoiding family disputes, donating to charity and the privacy they offer.
The decision will ultimately be your but there are many good reasons to opt for a trust and it’s a good idea to talk to a reputable solicitor about the best way forward for you.
What type of trust should I get?
Your solicitor would also be able to talk to you about the types of trusts that are available. There are numerous types available and they all serve a purpose. Bare trusts are common and this is where assets are held for a beneficiary until they turn 18 years old which is commonly used for children and grandchildren.
Discretionary trusts are where assets are held with specific instructions about what will get paid and when. This is commonly used for high-value assets and it can also be used for caring for someone with special needs where you can provide a regular source of income.
Other types of trusts are available and you can even have a mixed trust where you incorporate different aspects of trusts into the one plan. There is a lot of flexibility in these trusts and ultimately you can set out exactly what you want to happen with your assets.
As we’ve seen, there are many reasons why you should set up a trust for your family. They can get very complicated and often have significant tax and legal ramifications. Due to this, it’s best to consult with a legal professional about the benefits you can have and whether or not a trust is right for you. When you write your will with Bequest, you can appoint our partners JP Estate Planning to set up a trust on your behalf. This is an additional service that may be suitable for you when writing your will. Just add it to your will once you're done!
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