Trusts have been a part of the UK’s legal system for centuries and often take the form of private legal arrangements which can provide a means of ensuring assets pass from one generation to the next.
Trusts can also offer flexibility as to the management and control of assets and how future generations should be allowed to use them.
There are many different types of trust although they will have similarities in so far as there will be a settlor or grantor (i.e. the original owner of asset) who hands over control of assets to trustees to manage and oversee the assets on behalf of the beneficiaries. Trustees have strict fiduciary duties as the legal owners of the assets to safeguard them on behalf of the beneficiaries.
One of the most common uses of trusts is succession planning. Careful succession planning can ensure that assets pass to or become held for the benefit of the appropriate successor and help to eliminate the risk that assets may be lost or diverted away from the family for a variety of different reasons which could range from the breakdown of family relationships to divorce and remarriage.
Farms for example often pass down through generations and trusts can be useful as part of any long-term succession strategy and an effective way of preserving family wealth.
The use of trusts can help to ensure that assets remain in the family and guard against future claims from creditors, spouses, or even a beneficiary’s misguided actions. In certain situations it could be open to a beneficiary to separate the assets from their own estate and redirect it elsewhere, and reduce any potential inheritance tax.
The role of a Will
Trusts are commonly (but not necessarily) set out in a person’s Will and come into force upon their death. The trust can specify what happens to a part of someone’s estate, name the trustees and beneficiaries and set out what should happen throughout the duration of the trust.
For example, the trust can allow certain beneficiaries the ability to live in the trust property or to utilise the income arising from the trust property for their lifetime but then provide for the trust property to pass to specified individuals on the death of the ‘life tenant’. Ultimately, the capital is protected for future generations.
Alternatively, where a person is uncertain as to who should benefit from their estate, they could provide for a class of beneficiaries where the trustees would have discretion to decide who should receive from the trust fund and to what extent. The Trustees could base their decisions on the family or tax circumstances at a given time. A letter of wishes can be written to provide guidance to the trustees as to how the trust should ideally be distributed.
Succession planning generally can also enable families to have time to consider and understand how to plan their estate in advance of death, which in turn can prevent unexpected and unnecessary tax liabilities and help to avoid family disharmony.
Conclusion and how Moore Barlow can help
There will inevitably be costs involved in setting up and maintaining trusts and whilst they may not be appropriate for everyone, they can be an effective way to gift someone part or all of an estate whilst maintaining control of the assets, and reducing tax implications, without making an outright gift.
Trusts can be flexible, and conditions can be attached to ensure that the assets stay within a particular set of beneficiaries, and in doing so, stay within the generations for the future.
At Moore Barlow, we have specialist team who can advise on the creation of trusts as well as any contentious issues which may arise.