Family Trust

SeniorSam

Trusts are usualy arranged if there is likely to be an inheritance tax liability following the second death of a married couple and having used both nil rate band allowances, presently totaling £650,000.

Think of Trusts as investments with lots of rules (like most investments). The difference is that Trusts are controlled by the Trustees who are appointed at outset by the one setting up the Trust - the Settlor.

The Settlor invests the money, ususlly with a life office, and having appointed, usually two Trustees in addition to himself, as the Settlor is also a Trustee, the investment is then growing outside the value of the estate.

The original amount going into the Trust can be by a loan or by a gift and the differences can be explained by an adviser specialising in these matters. Whichever way it is set up, the Trustees then control the Trust and can select where the money is invested (shares, funds, cash). Only the Trustees can determine what happens to the trust fund and the wishes in a Will are for guidance, although usually adhered to.

The ideal purpose is for the Trust fund to be available to help pay the inheritance tax when it is due and it can be made available before Probate for this purpose to avoid delay in settling the estate.

Should the Settlor, or anyone else for that matter, need money, then provided all trustees agree, this can be made available by way of gift or loan to that person.

Trust can be fairly flexible and not too complicated. It's just that they are considered by most to be a complex instrument until you know how they work.

Don't bother with them unless you really need to have greater control and can trust the trustees you appoint. As said earlier, the assets of the first to die caould be put in the Trust, depending upon the circumstances of the spouse. Then those funds passed to the beneficiaries when the second one dies, but with approval of the Trustees, just in case there may be problems, or restrictions within the Trust terms.

Example:
First death - Trust set up.

Second death - much sooner than expected - and then the estate would normally be passed to the beneficiaries.

Problem may be that the children or grandchildren are teenagers (18+) and totally irrisponsible. Solution ....... the Trustees determin how the money to them would be controlled until the Trustees see fit.

Many senarios, but a useful tool,
The other reason is huge family asssets (old money), which if in Trust, is controlled and 'managed' by the Trustees.

Seek professional advice if you wish to consider Trusts as it is not something that you can arrange yourself without complete knowledge and this forum can only give you an 'overview', as I have tried to do.

Sam

margaretclare

SenorSam, thanks for this very comprehensive overview of 'trusts'. As with most of us who come from a fairly humble background, I had no knowledge of this area of expertise. I envisaged 'trusts' as being in the region of the landed gentry et al.

The OP didn't make it very clear just what he wanted to know, and why.

I did know that the IHT rules had changed in recent years, but as DH and I are highly unlikely to achieve £650K of total assets in the lifetime remaining to us, I haven't given it a thought.

SeniorSam

Not a problem Margaret. I only went into the details as there were a few replies that perhaps were not so helpful.

Even when the overall estate is under the present £650,000 at present for a couple, the correct Wills are important. Also, how long will it be before the second to die?

We are all living longer these days and how many of us thought we would be worth what we have now? Values grow, so Trusts can be a useful tool, particularly the Loan Trust investment. A simple tool in which to invest, that gets growth outside the etate and into the protection of the Trustees. My wife and I set one up some years ago.

Sam

margaretclare

Thank you, Sam. Yes, we have the correct wills and also PoE. You're right, who'd ever have thought we'd have what we have now? DH and I are not poor simply because we each have our own pensions income and annuities based on our former jobs. We live comfortably but simply, find we're able to do most things that we want to do, holidays etc, but that's a long way from being rich. I've learned about investments since stopping work in 2002 and I continue to learn.