Making the decision to begin a family trusts can be plagued with a deluge of complex questions and unfamiliar territory.

Unless you’re well-versed in the legal and financial sectors, this can be an overwhelming process, which makes it even more difficult to discern the correct route for your own individual case.

Am I doing the right thing by my family? What are the tax implications? What if there is a relationship breakdown in the family? How about if I become too ill or incapacitated to manage my affairs?

Such uncertainty may cause one to postpone the process, eventually missing the opportunity to protect any hard-earned money and assets.

You might be thinking of setting up a family trust imminently, or you may simply be in the process of researching to decide if this is the best choice for you and your family. Either way, we’ve tried to answer the most common questions surrounding the typical ‘Family Trusts’.

What is a family trust?

A trust is a legal arrangement involving a three-party fiduciary relationship in which a first party (a settlor or trustor) transfers (settles) asset, such as property, upon a second party (the trustees, of which there must be at least two) for the benefit of a third party (the beneficiary or beneficiaries).

The English trust law was created to protect asset funds which can be held by one party for another’s benefit. The key characteristic of a trust is that it separates legal ownership and beneficial interest. A family trust in this case, is created to benefit a family member (either by blood, affinity or law in the case of adoption) and can be used as an instrument to pass assets onto future generations. As a legal device, it is often used to avoid probate delay, tax and protect one’s assets.

What is the difference between a trust and a will?

The two are frequently confused, and while the ultimate goal is not always dissimilar, the distinction is somewhat technical. In the case of a family trust, the appointed grantor (or settlor) will continue to have full control and use of all assets, and the appointed trustee has no role until the grantor is deceased or incapacitated. The trust therefore, covers the individual’s assets in terms of dispersing those assets following one’s death or incapacity.

How are family trusts set up? Do I need a legal personality?

Administering a trust is a complex and laborious process, so it is highly recommended that you employ a solicitor to do this. The language and terminology used in a trust must be meticulous and precise, and an experienced legal personality will have the knowledge to do this professionally and correctly.

There will be an initial cost depending on your solicitor of choice and the nature of your trust. Although some charities have schemes where they will contribute to the parents’ cost of setting up a trust for a disabled child, for example.

It is vital that good advice is sought from the offset – setting up a trust is a complex process and is best kept in the hands of a legal professional who can foresee and mitigate any potential oversights during those initial stages. This will help you to avoid costly mistakes further down the line.

What type of ‘assets’ can be held in the trust?

You might wish to place assets of a high value or importance into a trust. This could be anything from:

• The family home
• Cash
• Bank deposits
• Vehicles
• Shares
• Artwork

What are the advantages of having a family trust?

A family trust can be advantageous for a number of reasons, and its protection can provide peace of mind in many scenarios. Here are the most common:

Preserve or increase value of assets

A trust is often used to preserve or increase the value of certain assets overtime. Unlike a will, an estate doesn’t have to simply be divided and shared among the heirs but can be retained in the fund for the purpose of accumulating more value. In this instance, payment provisions can be arranged and paid to heirs when the need arises, but the property value is preserved and able to accumulate over time which can be kept for later generations. This can be extremely advantageous if you, as a grantor, have concerns about a vulnerable family member’s ability to manage their financial affairs following your death.

Continuation of a family business

The family entrepreneur may wish to transfer shares of their business to a family member (trustee) to prevent unnecessary liquidation of the business following their death or incapacitation. This ensures continuation of the family business.

Tax planning

Inheritance tax would be eliminated in the case of a family trust since the assets transferred are no longer considered as belonging to the settlor. This can also protect future generations from potential tax law changes; a correctly administered trust could ultimately provide substantial financial savings in the future.

Confidentiality

Trust assets and their value are kept completely confidential since they are not publicly registered, unlike a will, which, as a public procedure requires you to inform tax authorities.

Protection of assets

Assets held in a family trust are protected from creditors if the settlor were to come into any financial difficulty.

What are the disadvantages of a family trust?

There are potential obstacles and disadvantages to some legal arrangements, however these are not completely insurmountable:

Complex administration

As previously mentioned, administering a family trust can be a laborious and time-consuming process, which requires professional legal assistance. Any vague and ambiguous vocabulary could render your trust obsolete which could cause distress and costly problems for your trustees.

Loss of ownership

Of course, once the trust is set up, legal ownership of said assets will be passed onto the trustees. While the settlor still maintains some level of control, in that they can add or remove trustees, they no longer have legal ownership of the assets.

Initial set up cost

There is of course an initial cost to employing professional help to set up your family trust. This cost is completely dependent on the nature, complexity and types of assets pertaining to your trust.

Family trusts provide numerous financial benefits, some of which are immediately apparent, such as protection from relationship breakdown or claims from business creditors. The benefits of course vary depending on the nature of your own objectives, your estate, and your assets.

Family trusts, as the name permits, help to keep assets of financial value ‘in the family’, and can therefore be used to protect valuable assets from your own past partners, or partners of your children and/or grandchildren. Whether there is a business, a substantial monetary gift, or a property you wish to protect, it might be worth speaking with a member of our team to discuss how we can build a tailored approach to your own family trust.

Speak to a member of our team today about Family Trusts on 01234 802 391 / 0345 222 0022, or by email at info@goodwills.net