Use of a trust
Using a trust within your Will and for estate planning can provide security for family assets against matters such as divorce or bankruptcy of family members and in some circumstances can be beneficial from a tax perspective.
It is important to note that trusts are not suitable for everyone. Trustees must manage trust assets responsibly and comply with legal and tax obligations, which requires a thorough understanding and ongoing commitment. For this reason we would always suggest considering appointing Professional Trustees. Trusts often come with setup and ongoing compliance costs, which you should fully understand and should be considered alongside the benefits.
It is strongly recommended that you consider inheritance tax planning alongside your Will and estate planning to ensure that all relevant matters are reviewed to ensure you are aware of the various reliefs available to you and you are not unwittingly causing tax problems on your death.
Beavis Morgan, our parent company, provides specialist assistance on inheritance tax planning; the taxation of trusts and tax-saving strategies related to will structuring. Their services are tailored to effectively manage and optimise your tax obligations and estate planning and are fully versed on the complexities and responsibilities involved in trust management.
Taxation of a Trust
How and when a trust is taxed will depend on what type of trust is being considered. Generally speaking, usually, the most appropriate trust for use in estate and Will planning is either a discretionary trust or a life interest trust.
Discretionary trusts are as the name suggests, established for named beneficiaries (or classes of beneficiary) and the use of the income and capital of the trust is at the discretion of the trustees.
A life interest trust specifies that the income for the trust is for the benefit of the “life tenant”, usually the surviving spouse, but the underlying assets are held for those who will ultimately inherit the assets. These arrangements may be useful in circumstances of a second marriage with children from the first marriage.
Trusts are separate legal entities and have their own tax regimes. This can be complex, but involve income tax, capital gains tax and inheritance tax.
Summary
Trusts can be complex but are particularly useful for bloodline planning and/or if there are complex issues within the family.
Beavis Morgan LLP can advise on all related tax issues.
