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What Is A Trust And How Can It Help Me?

Preparing for Death

Many people have heard of a trust but not may know exactly what it is or whether they should get one. While it's not for everyone, there are many potential benefits to setting up a trust. We'll look into that in detail here and see whether or not a trust is right for you.

What is a trust?

A trust is where you set money aside for it to be used at a later date. The money is securely held until the criteria for its release are met. You can either set this money aside for yourself or for someone else.

A common reason for this is that you may need care in later life and you want to set up a trust to pay for that. Another reason may be that you want to leave money behind after you pass away to a child but want to keep it in trust until they reach adulthood.

The benefits of a trust

There are many benefits to a trust and here we look at the main ones:

Avoiding probate – If you set up a trust before you die, you can avoid that money going through the probate process. Depending on the type of trust, the recipient may be able to receive the money a lot quicker than they would do through a will.

Avoiding inheritance tax – You can choose a trust where the money effectively stops being yours and is simply held for someone else. If you do this, you may be able to avoid inheritance tax being paid on it as it has already been gifted.

Almost uncontestable – The only rules of a trust are the ones that you set out. For example, it can’t be subject to the rules of intestacy like the rest of your estate. This means the money you leave in a trust can’t be contested as long as you made it under sound mind.

Future security – Setting money into a trust can secure the future for yourself or someone else. Nothing will happen to the money unless the rules you set out are met. This allows you to set up future finances in confidence.

More private than a will – A trust is much less of a public record than a will. If offers you the chance to have more privacy and make arrangements outside of your will.

Types of trust

There are many different types of trust; here we will briefly look at the main ones.

Bare – Where assets are held for a trustee until they are 18. This is a simple trust and most commonly used for children.

Interest in possession – Here the beneficiary will receive any income from the assets go to the beneficiary, such as income from shares.

Discretionary – This is a trust with specific instructions such as what gets paid, to who, when and any other conditions. An example would be a child that has specific disability care needs.

Mixed– You can combine elements of different trusts into one trust.

Non-resident – These are for people that are not resident in the UK for tax reasons.

Vulnerable person – You can specifically set up a trust for a vulnerable person and this can have specific tax benefits.

There are other types of trust which can be a little more complicated but they are usually branched off from these main types.

How to set up a trust

There are a lot of different types of trusts out there and the legal and tax implications of them can be very complicated. The wording of these trusts needs to be very precise so that your wishes are carried out exactly as you want them to.

Due to this, you’ll need to contact a solicitor that specializes in writing trusts. This can be expensive but can be worth the cost in many circumstances. You can then appoint a trustee who will be responsible for managing and carrying out the rules of the trust.

Trust FAQs

Should I put the money from my will in trust?

If you have a specific idea of what to do with your assets then it can make sense to put it in a trust rather than letting it form a part of your estate. This can avoid some of the downsides of leaving assets in a will such as the time it takes to go through probate and inheritance tax.

Can I put a trust in my will?

Another idea is to stipulate in your will that you'd want to have a trust set up. This can be a good idea in certain circumstances, especially if you have children/grandchildren that you want to protect in the future.

Can I put my life insurance in trust?

Yes, you can write your life insurance policy in trust and in fact, it makes a lot of sense if you think inheritance tax will be due on your estate. Placing assets in a trust can mean they no longer form a part of your estate. You can then add any other rules such as appointing trustees who will manage the funds until the rules are met, such as a child reaching the age of 18.

Final thoughts

A trust can be the perfect way to take care of yourself or a loved one in the future. It will set money aside that can’t be touched until the rules you’ve set out are met. Once it’s in place, you can have peace of mind that you or your family will have financial security in the future. Don't forget, if you write you will with Bequest, you can choose to protect your assets using a trust. This is setup with our partners JP Estate Planning who can help you with all aspects of your will.

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