Trusts are very important considerations in effective financial planning and play a crucial role in providing asset management, protection, and distribution while offering flexibility, control, and potential tax benefits. Setting up a trust can be a powerful tool for managing and preserving your assets, protecting your loved ones, and achieving your long-term financial goals.
Who is involved with a trust?
There are three parties involved when setting up a trust – the settlor, the trustees and the beneficiaries.
The settlor
The settlor is the person who establishes and puts assets into the trust. Settlors are usually individuals or couples.
The trustees
The trustees are the people who control and oversee the trust. Trustees are responsible for ensuring the trust conditions are met. Trustees must be at least 18 years old, sound mind and ideally young enough to outlive the beneficiaries
The beneficiaries
The beneficiary of the trust benefits from the trust.
What are the different types of trusts?
There are many different types of trust, each with different purposes and tax rules. Some of the most common types of trusts are:
- Absolute Trust
- Discretionary Trust
- Split Discretionary Trust
- Survivors Trust
Absolute Trust
Distributes assets absolutely and is paid to beneficiaries who were named at the outset. The names cannot be changed and are unable to accommodate changing circumstances.
Discretionary Trust
Trustees can distribute proceeds to a range of beneficiaries and the range can change over time. At set up, the Settlor creates a trust that gives the trustees the authority to distribute trust proceeds to a named range of beneficiaries. You may choose a Discretionary Trust if you may have more children over time therefore a discretionary trust would be appropriate because they can change the names range beneficiaries.
Split Discretionary Trust
A split trust is a trust which enables a policyholder to place certain benefits, such as death benefits, in trust for chosen beneficiaries and to retain some, such as Critical Illness Cover, for themselves. It works in the same way as a discretionary trust, but Critical Illness Cover is not included in the asset gifted to the trust therefore the proceeds can be accessed by the life assured.
Survivors Trust
A Survivor’s trust is valuable in estate planning for married couples, providing asset protection, tax planning opportunities, and flexibility in providing for the surviving spouse and future beneficiaries. A survivor’s trust is typically created by a married couple, often as part of a joint revocable living trust. The trust document outlines the terms and conditions under which the surviving spouse will benefit from the trust assets after the death of the first spouse. If one person dies, then the remaining plan holder will receive the proceeds providing they survive for a further 30 days. If the remaining plan holder died within 30 days the proceeds go to the beneficiaries.
Why should I set up a trust?
Control and Flexibility
A trust lets you keep control over the assets you place in it. Trusts allow you to specify how and when your assets are distributed to beneficiaries, providing flexibility to accommodate family dynamics, financial needs, and personal preferences.
Protection
Certain types of trusts can shield assets from creditors, lawsuits, divorce settlements, and other potential threats, preserving wealth for the benefit of your beneficiaries.
Inheritance tax
Trusts can be structured to minimise estate taxes and gift taxes maximising the wealth passed onto future generations and charitable organisations.
Avoid probate delays
A trust is separate from your estate, your trustees can immediately access any money held in it and use the money to pay the inheritance tax bill and probate fees.
