A Matter of Trust


Stuart Coombe, ParaPlanner


Here at Old Mill we have always discussed and advised on the use of trusts with our clients. Whilst the legislation has changed over the years the principles and uses of trusts have remained largely the same.


A trust is a way of placing an asset for the benefit of other people without giving them full control over it.


Why use Trusts?


There are many reasons for placing assets into trust and here we briefly examine some of the main planning opportunities that exist:


Saving Inheritance Tax


Trusts are a popular tool when planning to reduce the value of an individual’s estate for Inheritance Tax (IHT) purposes. Many individuals choose to place monies into trust rather than making an outright gift, thereby maintaining a degree of control over the asset.


Similarly, Trusts can be used as an effective way of passing wealth to successive generations rather than potentially removing an IHT liability for one generation only to present the same issue to the next generation.


Protection of assets


The use of Trusts provides a useful degree of protection of assets. As a beneficiary is not the legal owner of the Trust asset, the correct use of Trusts can provide protection against Divorce and Bankruptcy.


It is also possible for a Trust to provide a loan to a beneficiary. The terms of the repayment of the loan can be set so that it provides protection and that in the event of a divorce the repayment is due immediately, thereby protecting the assets.


Life Assurance


Trusts are often used hand-in-hand with life assurance, for several key reasons. Firstly the proceeds in the event of claim are received by the Trust and therefore do not form part of the estate of the deceased. Secondly, in the event of a claim, if the plan is held by a Trust this negates the need to wait for Grant of Probate or Letters of Administration, thereby speeding up the payout process at a time when funds may be needed quickly i.e. to pay off a mortgage or provide financial security after the death of a family or business earner.


It’s not just useful for individuals – the use of Trusts for businesses can provide similar advantages and are used in Shareholder or Partnership Protection, something that was mentioned in the last Financial Planning Matters.


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