There are many responses that I get from clients when I mention Trusts, though not often is it immediately positive. The average person will never have come across a Trust before, and people are naturally cautious of the new and the different. So hopefully this is a great place for me to point them in the future.
What is a Trust?
A trust is named as such because a person entrusts money or an asset to people that they trust (usually family), known as Trustees, to manage on the behalf of the eventual beneficiaries (usually kids or grandkids).
Confused yet? Here is a simplified example to help.
I put £100,000 into a trust and name my two sons as trustees. I then name my two granddaughters as beneficiaries of that trust and ask my sons to give the grandkids 50% of the trust each, when they turn 18, so that they can buy a house.
So what is the purpose of this trust and why would you even need it?
To gain control
One of the main reasons of using a trust is control. I know that I want my grandkids to receive the funds when they turn 18 and I am worried that, if I give it to them now, they will spend it on something silly rather than buying a house. The trust will mean I can set aside those funds now as a gift but they will only receive the funds when I intend them to.
Inheritance Tax Planning
Of course, I could just leave the money to my two sons in my will and ask them to give it to the grandkids when they turn 18. However, this will mean that the £100,000 will form part of my estate for inheritance tax purposes and so could incur a 40% tax on my death. This means my grandkids will only get £60,000, rather than the £100,000 I intended.
If I set up the trust and gift the funds to it, I am making a gift out of my estate. If I survive 7 years after I make the gift, this will be considered 100% outside of my estate for inheritance tax purposes. Saving £40,000 and maximising the deposit my grandkids will have when they turn 18.
The best thing about a trust is that you can invest the trust assets while they are in there. So the £100,000 has the potential to be even greater when the grandkids get to 18, so you are increasing the gift that you can give. This has a few more hoops to jump through, to make sure it is tax efficient but very easy for advisers like us to do.
So, are you looking to save some IHT and put some money aside for your kids and grandkids future? If you are then…
Give us a Call
For more information, contact us here.
We are independent Financial Planners and so setting up trusts and helping you with planning is our job. So any further questions or help you need, perhaps a trust isn’t for you but you are worried about inheritance tax, we will be happy to help.
Trusts are not regulated by the Financial Conduct Authority.
Inheritance tax planning advice is not regulated by the Financial Conduct Authority.
The value of units can fall as well as rise, and you may not get back all of your original investment.
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