 |
 |
|
|
The Trust is a creation of the lawyer for the benefit of the client. Trusts will be created for a particular purpose and all trusts are basically a way of one or more persons holding an asset (the trustees) for the use and benefit of others (the beneficiaries).
The proceeds of a life policy (death in service benefit or pension policy) may be written in trust so that they do not form part of the deceased's estate and may not be subject to inheritance tax (IHT). There are several different forms but a flexible life policy trust will usually involve the policyholder assigning the policy to the trustees upon discretionary trusts (see below) but retaining the right to appoint new trustees and to nominate a "main" beneficiary or beneficiaries, for example spouse and children. With most flexible life policy trusts the policyholder is also able to alter the potential beneficiaries should there be a change of circumstances, for example, divorce or remarriage.
An accumulation and maintenance trust is a trust in favour of a class of beneficiaries who have a common grandparent. Usually the class will comprise the children or grandchildren of the settlor (the person putting the asset or assets in trust). This type of trust has tax advantages for the settlor. It can be a good way of ensuring that assets fall outside your estate for inheritance tax purposes whilst at the same time allowing some control over the assets at least until the beneficiaries reach the age of 25.
Discretionary Trusts are where trust income and capital are held at the discretion of the trustees for a group of beneficiaries. The trustees determine how much (if anything) each beneficiary should receive, and when. It is usual for the settlor to set out his or her wishes for the payment of the trust funds in a non-binding side letter to the trustees. This type of trust is very useful for both inheritance tax planning and to provide for a beneficiary whose circumstances are not settled at the time the trust is set up.
This type of trust gives a beneficiary (sometimes referred to as the life tenant) the right to enjoy the trust property for a specified period, for example the right to occupy a home, or to receive the net rental income from it. When the specified period comes to an end, the trust property will pass to another beneficiary. They are used, for example, to protect assets for children following a second marriage and for this purpose are often incorporated into a Will.
It is possible to establish a special form of discretionary trust which, if properly drafted and administered, should qualify for certain tax concessions. It can also ensure that the disabled person for whom the trust has been specifically formulated can continue to receive means tested state benefits.
It should be clear from these notes that trusts can be used for many purposes. They should always be used with caution and careful thought given to whom should benefit from the trust, how they should benefit and the taxation consequences. Proper regard must be given to the circumstances both financial and personal and to the wishes of the person putting the asset into trust. If the client or advisor is unsure legal advice should always be sought. In any event it may be a very good idea to refer a client who is concerned about the effect of inheritance tax or provision for other family members to obtain specific legal advice.
We trust these notes will be of assistance to you, please note that they are not intended to be a full and precise exposition of the law. Do not hesitate to seek our further advice.
| Dealing With a Deceased's Estate |
| Family Trusts |
| Gifting the Family Home |
| High Value Litigation |
| LPA Factsheet |
| Making a Will Factsheet |
| Referral Sheet General Probate |
