Protecting you and your estate
Estate planning – Trusts
When we write our Will we usually know who we want to pass our estate to. On a very basic level it’s likely to be our current spouse and our children. In fact, if we died ‘intestate’, without a Will, that’s exactly how the Rules of Intestacy would distribute our estate: currently, the first £250,000 would go to our spouse and the balance would be shared equally between our spouse and our natural or adopted children.
But life isn’t always so simple. Circumstances change and, despite our best intentions when we write our Will, our plans may not always be fulfilled – what we think is a simple, fair and equitable way of distributing our estate may run aground for all sorts of reasons. Moreover, passing our estate to others raises the spectre of Inheritance Tax which, of course, our beneficiaries would very much like to be minimal so they can enjoy the full value of their inheritance.
The use of a trust can successfully address both issues: they ring-fence your assets which ensure your beneficiaries receive what you intend them to receive, and can minimise the effects of tax by effectively removing assets from your estate.
What is a trust?
A trust is a legal contract under which a group of people are given responsibility for administering and managing named assets for the benefit of another group of people. The person creating the trust is known as the ‘settlor’; the people administering the trust are the ‘trustees’ and the person or persons who will eventually benefit from the trust are its ‘beneficiaries’.
Why trusts are used
There are a variety of reasons for creating a trust when making a Will. Most relate to either creating an environment within which the settlor’s Will can be effectively enacted and / or limiting the extent of Inheritance Tax. The three most usual reasons are:
Types of trust
Trusts fall into two broad categories, ‘revocable’ and irrevocable’.
Within these two categories there are a number of different types of trust specifically designed to address different circumstances and needs, the most usual being:
Trustees are the people responsible for administering the trust and managing its assets. By definition, they become the legal owners of those assets covered by the trust but must manage them in the best interests of the beneficiaries.
Not surprisingly, the duties and powers of trustees are defined by law and, depending on the type of trust, may mean that trustees have:
Trustees are at the heart of any trust so it’s vital they have the capacity to perform the duties expected of them. As the trust you set up will be an integral part of your Will you must appoint and name the trustees of any trust within it. You can appoint up to four trustees per trust but it’s best to appoint at least two. In most cases, you may appoint your executors and if you are also appointing guardians for your children, appointing one as a trustee is beneficial. In selecting trustees, ideally you need someone you know and who is trustworthy, has some experience with financial matters, has the beneficiaries’ best interests at heart and can be reasonably expected to outlive you.
Although the trust can be set up to reimburse the trustees for reasonable expenses, it must be realised that the money used to do so comes from the estate and could, in time, have passed to the beneficiaries. It’s possible to engage professional trustees but, as their fees are also paid from the trust’s funds, this is not a popular option and should only be used as a last resort.
Setting up a trust
Setting up a trust will need the services of a solicitor, and ideally one who specialises in estate planning. Trusts can be complex but, if used judiciously with knowledge and experience, can offer a durable and cost-effective solution to many estate planning problems.
How can One Financial Solutions help you?
‘Hope for the best but plan for the worst’ is a common maxim – but many of us just ‘hope for the best’ and then don’t do any planning at all.
One Financial Solutions is here to help you. As a firm of independent financial advisers we can provide impartial advice to help you identify the potential risks you face and develop a strategy that provides protection from their consequences. We’ll recommend the best products from across the whole of the financial services market and help put in place the safeguards you need to protect both you and your dependants.
We can also provide a comprehensive estate planning service to complement the financial advice we give you. Helping you preserve everything you’ve worked so hard to achieve and ensure that it’s passed on to who you want is a natural extension of what we do.
So, if you’re looking for help with any aspect of protecting either yourself or your estate, please call us on 020 3714 9565 or ask us to call you by sending an email to firstname.lastname@example.org.