When speaking to clients about Trusts, I often find a common misconception is that they are considered to be an old-fashioned way of manging assets that our grandparents and great grandparents would have used to tie up assets in Wills for future generations. It is also commonly thought that Trusts are only used by the rich and famous to avoid paying tax. But in reality, Trusts still form a very important part of protecting assets and tax planning for almost everyone and should not be overlooked.
Whether created and set up during your lifetime, or formed as part of your Will, there are many different situations where I recommend Trusts.
In a Will, Trusts can be tailored to almost every individual scenario to suit the needs of you and your estate. The most common, and arguably most important reason for setting up a Trust is to protect assets when passing on to beneficiaries where:
a) Children are not yet old enough to manage the assets themselves
b) Beneficiaries are vulnerable or find themselves in vulnerable situations (for example if they have marital or financial difficulties)
Managing estate inheritance where there are children or vulnerable beneficiaries involved can be a difficult planning process. In Scotland, without additional restrictions in place, beneficiaries can have full access to their inheritance as soon as they turn 16 years old. Trusts, managed by appointed trustees, can provide that extra piece of mind in scenarios where you might not trust the individual to gain control of assets all in one go – especially when they might be at a younger age - or indeed if the person doesn’t have the capability to manage the assets themselves at all.
Another scenario where Trusts should be considered in a Will is when looking at succession planning for a blended family. A Trust can be used as a strategic part of estate planning to ensure that your estate is safeguarded and distributed the way you would like after death.
However, Trusts need not only be thought of as ways of managing your assets after you die. Indeed, Trusts can also be very beneficial when set up during your lifetime for a number of different reasons. Most often, these reasons are for:
a) Later life planning – for example, planning in case you might need to consider how to fund future care needs or move into a care home. Read more on our Planning for Later Life page.
b) Compensation award management – often we will advise that personal injury or similar compensation awards are held for clients in Trust.
c) Inheritance Tax and school fee planning by grandparents – often, our clients want to help their children fund education costs for the next generation and trusts can be an excellent way of allowing for grandparents to assist with meeting their grandchildren's school fees and, if structured correctly, this can also be beneficial for grandparents by minimising the impact of future inheritance tax.
d) Managing assets through a charitable trust - It is not uncommon for wealthier clients to set up their own charitable Trust which can be managed by Trustees to contribute to the clients’ preferred charitable causes. As well as supporting good initiatives, there are various tax benefits to managing contributions in this way.
Trusts are, in short, an important tool in estate planning that should not be overlooked. For many of our clients, exploring options with Trusts have helped them create an asset management plan that works for them and their individual needs – whether these be during life, or after death.
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