Trusts: What are they and should I get one?

We all want to make sure that our loved ones are taken care of, even when we’re no longer around to ensure that this is the case.

As we’ve discussed previously, having a will in place is an excellent method of achieving this. After all, a will ensures that an individual’s assets are shared between friends and family exactly to their wishes, removing unnecessary complications from an already upsetting and difficult time.

That said, even if assets are carefully divided up within a will, they will still be subject to substantial inheritance tax (IHT) charges, which can pose a significant financial burden on those who have inherited assets.

Whilst IHT is largely unavoidable, there are some legal mechanisms that can reduce the charges imposed on assets when an individual dies: trusts.

What are trusts? 

Trusts are fiduciary relationships within which one party (the trustor) gives another party (the trustee) the right to hold title to property or assets to the benefit of a third party (the beneficiary).

Put simply; trusts allow individuals the opportunity to protect their assets, guaranteeing that loved ones have financial stability and security in the long term.

There are many benefits to having a trust. For one, they can help to reduce an individual’s IHT bill. This is because trusts can provide certain conditions where the assets in question do not belong to the individual per se. Instead, they belong to the trust and are controlled by the trustee. This means that they are considered to be outside of the individual’s estate and exempt from IHT charges.

They also help people to create long-term financial provisions for their loved ones. For example, they can enforce protections for their children’s inheritance in the event of their surviving spouse remarrying, or if their own children marry and then divorce.

Such protections can be invaluable to individuals in the long-term, not only because they provide financial support, but also to provide peace of mind to family members that their estate is being managed in a secure and tax-efficient manner.

Should I set up a trust? 

The broad assumption is that trusts are exclusively for the very rich who require widespread protections on their estate – but this is far from the truth. Indeed, people of any income level can benefit from a trust.

That said, there are many different types of trusts to suit the various needs and financial situations of different people. As such, it is vital to seek advice from a qualified professional before pursuing this route of asset management.

Trusts are an incredibly beneficial legal tool, so it is advisable for people looking to organise their estate to consider it as an option to protect their assets effectively. Provided they seek the appropriate legal advice, one would expect that more people could benefit from incorporating trusts into their estate management.