For some, setting up a Trust is seen as a complicated and unnecessary process which is only relevant for inheritance tax planning. Whilst Trusts are useful for tax planning, they also provide a helpful way of protecting and controlling funds which are to be gifted to family members.
Instead of gifting assets outright to children or grandchildren (whether they are minors or adults), where there can be no guarantee that those assets are used in the way you foresee or consider appropriate, assets (including cash, investments and property) can be gifted into a Discretionary Trust, with the intended recipients as Beneficiaries.
The Trust can be used to hold assets for a multitude of purposes, including school fees, university, or a contribution to the purchase of a property, perhaps by way of a loan. Large, one off payments or regular, smaller payments can be made into the Trust.
Assets in the Trust will remain under the control of the Trustees (who can be the person who set up the Trust and/or other friends or family members) until the Trustees consider it appropriate to pass assets to a Beneficiary outright. It is at the absolute discretion of the Trustees to decide when the Beneficiaries should receive assets from the Trust, and how much they should receive, giving the Trustees control of the use of the funds.
Provided the value of assets passing into the Trust falls within an individual’s inheritance tax free allowance (currently £325,000), there will be no inheritance tax when the gift goes into Trust. If the person gifting the funds survives for 7 years after making the gift, the gift will be free of tax on their subsequent death. Gifting into Trusts can, therefore, reduce the value of your Estate for Inheritance Tax purposes, whilst also allowing you to retain control over what happens to those funds.
Taylor Walton can advise on the utilisation of Trusts, and prepare the relevant documents to create a Trust. If you think that a Trust may help you, contact our Private Client team.