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Trusts - MB Estate Planning

Trusts

What are Trusts?

The basic idea of a Trust is to allow a person to give away assets for another person to control and manage for the benefit someone else.

  • The original owner of the assets is called the Settlor.
  • The person who looks after the assets is called the Trustee.
  • The person who benefits from the asstets is called the Beneficiary

These three people can actualy be the same person or three completely different people. There can be multiple settlors, multiple trustees and multiple beneficiaries. Trusts are very flexible and can be designed to suit your particular needs.

Why use a Trust?

You could just give the assets to the Beneficiary absolutely, but there are many problems with that; they could be declared bankrupt, they could gamble it away, they could lose mental capacity and be unable to manage the assets and there are many other ways that the assets could be lost.

You might want to be able to get the assets back in the future and the person looking after them might not want to give them back. When land owners went away to fight in the Crusades, they needed to appoint someone to manage their land, but they wanted to get it all back when they returned.

To avoid these kind of problems the legal concept of a Trust was created.

Who Owns The Assets?

When a Trust is created and assets are placed into it (settled) the trust itself becomes the legal owner of the assets.

The trustees are people who are appointed to manage and control the assets, but they don’t own the assets, the trust does.

Some Uses of Trusts in Estate Planning

Divorce

Sadly the path of true love often comes to an abrupt end. About 45% of marriages in the UK end in divorce and the courts are likely to award a substantial share of your wealth to your soon to be ex.

If you own property and are getting married, it may be worth putting it into trust before tying the knot, that way if Mr or Mrs Right turns out to be Mr or Mrs Wrong, they are less likely to get half your property.

Pre-nuptial agreements are often ignored by the courts in the UK, so Trusts may be a more substantial solution.

Bankruptcy and Debt

You want to leave your children equal shares of your property in your will, but one of your children has debt problems or a business that has fallen on hard times.

A sudden inheritance at a time when your child is in debt or bankrupt may mean that they do not benefit as the money will likely go to their creditors instead.

Using a Trust their inheritance could be held securely until the financial problems have been resolved, in the worst case they could be skipped entirely and the inheritance be held for their own children. The wealth stays in the family.

Remarriage After the Death of a Spouse

Many widows and widowers will get married again and often the second spouse will have family of their own from previous relationships.

The problem for the original family occurs if the surviving spouse of the first marriage dies before the new partner of the second marriage.

It is typical for married couples to leave everything to the survivor in their Will (mirror Wills) and once the estate has been settled there is nothing to stop the second partner making a new Will and completely disinherit the children and grandchildren from the first marriage.

This is called sideways disinheritance and has always been a problem when widows remarry.

We can design Trusts and Wills that stop this from happening and make sure your children and grandchildren inherit according to your wishes.

Long Term Care

This is the biggest problem facing families at the moment when it comes to risk of losing almost all of their wealth.

The Government has consistently failed over and over again to create a proper solution to long term care and the cost of nursing home fees.

As it stands, if you have over £23,250 (in England) or £50,000 (in Wales) of savings and property (including your home) then you will get no assistance from the State and your family will have to fund 100% of care costs.

This leads to hundreds of thousands of family homes being sold to pay for care fees every year.

There is also a risk where one spouse has lost capacity due to illness (e.g. Alzheimers) and the healthy spouse dies first – the whole of their wealth is now at risk from an inevitable claim for care fees.

We can construct Trusts that enable you to protect the family home from risks like this and our typical price for this is less than one month of care home fees. Doing nothing could cost everything.

Inheritance Tax

Trusts can help to minimise the amount of Inheritance Tax (IHT) that your family needs to pay after you die.

With house prices continuing to rise ever higher and the Nil Rate Bands for tax remaining largely static over time, many families are faced with large tax bills.

Inheritance Tax has to be paid up front in cash before the Government will allow your estate to be passed to your heirs. This may involve your family having to borrow money just to get control of your assets is there is not enough cash to pay the tax due.

By placing certain assets into trust, they can remain outside your estate and pass directly to your chosen beneficiaries without waiting for probate.

Some kinds of asets will be free of tax after being in trust for 7 years, which can help reduce or eliminate the IHT bill.

Disabled Persons

A disabled family member will need to be looked after when you are no longer able to care for them whether through illness or death.

It is an unfortunate fact of life that when someone is vulnerable through illness or disability there are many unscrupulous people who will be more than happy to help them spend their money or just plain steal it!

It may be a diabled child or grandchild or it may be a husband or wife who has started to suffer from health and mental capacity issues.

One of the best ways to make sure that a vulnerable person is provided for without the risk of unsuitable people taking their money is to create a trust that manages the money for them during their lifetime.

Get in touch today to book a free consultation.