What is a Trust Deed?
The Benefits of Trusts Vs not having a Trust.
Without a Trust you would leave your assets absolutely to your beneficiaries, this would then be at risk of absolute distribution, such as:
- Increased estate value for Inheritance Tax
- Inheritance is completely attackable from marriage after death, divorce, bankruptcy, and Care.
- Inheritance can be easily wasted by spendthrift beneficiaries.
So what is a trust and what benefits can it provide?
It’s important to understand what a Trust is and the benefits that a Trust can provide.
A trust is a legal relationship that is created when you as a settler transfer assets to two or more people who are the trustees, with instructions that they hold the assets for the benefit of your loved ones? (The beneficiaries). To achieve this the trust separates the legal ownership of the asset or property from the beneficial ownership. The legal ownership of an asset is given to the trustees, who are bound by the terms and conditions of the trust deed and subject to general trust law.
It is their duty to hold and administer the trust property in the best interest of your chosen beneficiaries, who will ultimately benefit from it.
As a result of the trustees owning the trust property, these assets are then not deemed to be part of your loved one’s estate. So, these trust assets managed properly will not be subject to any claims on your beneficiaries.
The risks of full distributions.
If your spouse or partner remarried after you died, and you left them all of your assets, then the new spouse may inherit everything. The possible result is that your children may inherit nothing as the new spouse could leave it to their own family and disregard any stepfamily.
If your children are going through divorce or separation, then they may lose half or more of their estates including anything that you may have left them. Similarly, if your children are subject to creditor claims, then again, they may end up losing their whole estate.
Generational inheritance tax.
It is also something many do not consider. You may not have an inheritance tax issue now, but your loved ones may create their own wealth in their own lifetime. So, if they inherit further assets This could create or compound their own inheritance tax problem. Furthermore, the issue can escalate down the generations along with the possibility of the other risks as well. Even an initial modest estate can be diminished significantly over a matter of one or two generations.
The assets distributed from the Trust fully will increase your loved one’s estate accordingly, and therefore it could push the estates over the Inheritance Tax Nil Rate Band threshold. Furthermore, if your loved ones require nursing care, the local authority assesses the individual’s own assets, which includes those assets fully distributed to them from the trust. Arguably, the whole distribution is then at risk to those care fees as your loved ones are likely not to gain any financial assistance from the local authority. Each case should be considered on its own merit. And it is trustees who clearly have to consider the best strategy or strategies. It would also be worthy to note that the trustees must use their utmost diligence to avoid any loss. If they are negligent and a loss arises. They may be responsible for that loss to your beneficiaries.
There is a way to protect your assets left to a Trust which means your beneficiaries get what you wanted. It’s a simple strategy tailored to the individual.