Family Trusts?

SAFEGUARDING THE INTERESTS OF YOUR FAMILY

 

What is the Point of Family Trusts?

Family trusts perform a raft of functions. But the motives for setting them up are commonly because:

  • Trusts can allow for immediate access to funds (both capital and income) on the demise of the ‘settlor’ (the benefactor). This can avoid lengthy delays that would occur with a will which must go through ‘probate’ (i.e. a proving process to establish its validity)
  • The intended beneficiary or beneficiaries may be perceived to be too young and/or immature, at the point when the trust is established, to accept the responsibilities that the fund might involve
  • Trusts prevent the cashing-in of assets to cover debts or profligacy (reckless extravagance, as might happen when a youth gets hold of what they feel is an effectively-infinite mountain of money)
  • Usually the tenure of the trust allows the assets to appreciate in value and often that is swollen by revenue from rents and similar where property is involved
  • Trusts allow for continuity in respect of income where somebody might be temporarily or permanently incapacitated
  • Forward planning via family trusts allows for expenditure, such as for private schooling, that is a priority for most families
  • They tend to sidestep inheritance tax because the asset is not considered to be part of the benefactor’s estate
  • Trusts can let benefactors pass on assets whilst they’re still alive.

Are All Family Trusts Essentially the Same?

No. There are really 4 types of family trust in the UK. All of them involve the ‘settlor’ (the benefactor or person with the original assets), ‘deeds’ (the documented agreement that says who, what and when funds may be accessed as well as how they can be used), trustees and a beneficiary or beneficiaries.

  • The most common is the ‘simple’ or ‘accumulation’ trust which gives beneficiaries automatic rights to assets and any income derived from them
  • Then there are ‘interest in possession’ trusts where the main asset, usually a property, is to be passed on to a progression of beneficiaries. So, for example, a husband might leave a home to his partner but when she dies it goes straight to his kids, and then the grandchildren
  • Then there is a ‘discretionary trust’ where the trustees have a lot of leeway in respect of deciding who will receive what help and when that happens
  • Lastly there is the ‘accumulation and maintenance’ trust that, in effect, is a ‘discretionary trust’ which becomes an ‘interest in possession’ trust. So the trustees run it until the beneficiaries are ‘of age’. At that point the beneficiaries will be in charge themselves.

What Assets Can Be Put into a Family Trust? 

All sorts of assets can be put into a family trust. They might include not only property (land and/or buildings) but stocks and shares, cash (including foreign currencies) and commodities including precious metals. You might include antiques, classic cars, heirlooms and even items of sentimental value. 

What Else Will I Need to Consider? 

Once you know what you want to leave if something happens to you, you need to decide:

  • Who gets the assets (the beneficiary or beneficiaries)
  • Who the trustee is (or the trustees are) going to be. Trustees, and you only actually need one, need to be not only capable but willing and able to commit to that long-term. This could be quite onerous and demanding on a day-to-day basis. It could also go on for years if any children involved are young when the trust is established, since it will run until those children are mature
  • Conditions to go into the deeds. So you need to really sit down and construct a set of conditions in response to questions such as ‘Who?’ ‘What?’ ‘Why?’ ‘When?’ ‘Where?’ and ‘How’?’ – questions that will let your trust deal with every likely scenario (as well as, maybe, some unlikely-but-possible ones)
  • Responsibilities to HMRC. They should know about the trust. And the trustees will be responsible for paying any tax to the HMRC.

What Else Will I Need? 

  • Proof of ownership of the supposed assets
  • Very probably the assistance of a tax advisor or an accountant – or both
  • A good solicitor, for example somebody from Goodwills
  • Witnesses to your signing the documents.

Once They’re Set Up Can Family Trusts Be Changed?

Yes. And no. What we have here are two types.

  • Revocable trusts that allow adjustments to the ‘deeds’ if not abandonment of the entire scheme, or
  • Irrevocable trusts must operate under predetermined conditions until the ‘deeds’ allow otherwise.

Where Can You Find Out More about Family Trusts?

You can find out more on family trusts at Goodwills though the HMRC website will tell you a lot at www.gov.uk/trusts-taxes.

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