Perhaps you would like to give away some of your wealth to benefit other members of the family, but you are concerned that it will be dissipated. A trust can restrict the amount and type of benefit received from the property. For example, you may wish to assist your son with his university expenses, but you do not want him to spend the money on a fast car. A trust is the ideal vehicle to achieve this end.
You might like to provide for a disabled or vulnerable family member but are concerned that what you give them will affect their means tested benefits or expose them to financial exploitation. Using a trust can benefit them yet ensure their benefits and their vulnerabilities are protected.
Trusts can protect assets should future generations suffer financial or matrimonial difficulties, or if the beneficiaries are not mature and responsible enough to own large sums of money. The trustees will be able to take each beneficiary’s personal circumstances into account. There may be ongoing inheritance tax charges and this will have to be weighed-up against the benefit of asset protection.
An ageing population means that tens of thousands of homes are sold each year to fund the cost of residential care. A carefully drafted will can provide that a share of the family home passes into a trust on first death, which may give the survivor a right to occupy. With care, such a trust will ensure that the capital will be preserved and instead pass to the intended beneficiaries. A trust of this type can be drafted flexibly to allow the survivor to ‘down-size’ or move property.
A trust can allow your trustees to adapt to circumstances as they arise. If you make an outright gift of property, you cannot change your mind and give it to someone else if their needs change.
Reducing the inheritance tax burden
Trusts may have long-term inheritance tax advantages in cases where capital appreciation is anticipated to outstrip future increases of the nil-rate band. Trusts can also be used to benefit future generations by potentially by-passing children to benefit grandchildren.
Trusts can be used to pass your wealth down a generation whilst still benefiting your spouse for certain assets like life insurances.
Couples with existing nil-rate band discretionary trusts in their Wills should take advice before deciding whether to redraft their Wills, as the flexible nature of the nil-rate band discretionary trust may have other benefits and can offer solutions to complex family arrangements, and also may offer some level of asset protection.
Couples who have been previously widowed have the opportunity, with the use of trusts, to benefit from the unused nil-rate band of their previously deceased spouse which would otherwise be lost.
It is of vital importance that trusts are drafted and implemented by a properly qualified professional, as trusts that are not properly set up and administered can be challenged.