Allow your beneficiaries to receive your gift without delay.
Allow you to choose you want to benefit
Allow you to change who should benefit
But They Don’t;
Mean you give up control of your assets
Have to be expensive or difficult to set up with help from your adviser
Could you use a Trust?
A Trust is a way of choosing who will receive the benefit of certain assets, without giving your beneficiaries full and immediate control over them. A Trust can also be created by your Will.
Who Is Involved In Setting Up a Trust?
You, as the person creating the Trust, are known as the Settlor or Donor. The people who also manage the Trust are known as the Trustees.
In most cases, it’s necessary to have at least two individual Trustees in place all the time and you must therefore choose additional Trustees to administer the Trust.
These people may need to deal with the Trust if you die so you need to choose them carefully. The beneficiaries are the people who you want to benefit from the Trust. If the Trustees break the terms of the Trust, the beneficiaries may take legal action against them. The beneficiaries are identified in the Trust document.
What Are The Benefits?
Setting up a Trust can be easier than you think and can provide you and your family with real financial benefits.
Can I Change My Beneficiaries?
The Finance Act of 2006 introduced significant changes affecting the way Trusts are treated for Inheritance Tax (IHT) purposes. Most of the Trusts we offer are Discretionary Trusts. This means the Trustees have the power to choose which of the discretionary beneficiaries to pay the Trust fund or gift to and in what shares.
With a Discretionary Trust, the Trustees can appoint benefits to anyone included as a discretionary beneficiary. The Trustees have a Power of Appointment which means they can appoint funds to anyone who falls within the definition of discretionary beneficiaries within the Trust.
The donor can also prepare a Letter of Wishes to guide the Trustees as to which discretionary beneficiaries they’d like to receive the benefits.
The Letter of Wishes isn’t binding on the Trustees, so it’s important that the Trustees are chosen carefully.
Who Do I Appoint As Additional Trustee(s)?
As the word suggests, a Trustee should be someone you trust. For example, your partner, spouse, civil partner, another family member, a close friend. Trustees must be over 18 (16 in Scotland), mentally able and mustn’t be bankrupt. Trustees should sign the Trust form to acknowledgement their appointment. In accepting their appointment Trustees must carry out certain obligations and duties.
Inheritance Tax is charged at 40% on your estate on anything above the Nil Rate Band.
£5.1 billion is the amount of Inheritance Tax receipts in the tax year 2016 /17, an increase on £4.6 billion in 15/16.
Trustees must keep records, including Trust accounts, as they may need to prove they are managing any Trust funds properly. For example, records must be kept of any changes made to the investments in the Trust fund and any money paid or loaned to a beneficiary. We also recommend that proof is kept for any professional advice on investments etc.
What Other Powers Do Trustees Have?
The law gives Trustees some powers. These include;
· The power to use income from the Trust for the education of maintenance of a beneficiary who is under the age of 18
· The power to give capital give capital to a beneficiary before they become entitled to demand it
· The power to sell Trust property
· The power to give receipts
· The power to insure Trust property
Other more specific powers may be set out in the Trust form. The range of powers in each Trust can vary depending on the aims of the Trust. Trustees should make themselves familiar with the powers they have.
The standard range gives the following powers;
· The power to exercise any option within any plan for life insurance
· The power to pay benefits to the parent or Guardian to any beneficiary who is not yet 18
· The power to lend money to any of the beneficiaries
· The power to borrow using the Trust fund as security
Can I Change My Trustees?
The power of appointing or removing Trustees belongs to the Donor(s) while alive. If the donor wishes to remove a Trustee and that person is unwilling to sign the form, then the Donor can remove that person by sending a notice of removal in writing to the Trustees at the last known or usual address.
The Trustees being removed must then sign the necessary documentation to complete their removal. If the Trustee isn’t available to sign the documentation the donor will need their own legal advice in order to remove them. If a Trustees retires or is replaced, a new Trustee may need to be appointed.
267,549 estate were issued a Grant of Representation in 2013/14, which accounts for about 47% of all deaths in that year. Source: HM Revenue & Customs 2016
Getting The Money When It’s Needed Most
If an asset isn’t under Trust, your personal representatives (the people you have asked to deal with your estate after you die) will need to get the appropriate ‘Grant of Representation’ before they can deal with the asset. This process is known as ‘Probate’ in England, Wales and Northern Ireland or ‘Confirmation’ in Scotland.
Probate is the legal process of confirming who can deal with the estate of a person who has died before the assets of the estate can be distributed according to the terms of their Will. If someone dies without leaving a Will, they’re said to have died ‘Intestate’. Their estate will be divided according to the rules known as the ‘Laws of Intestacy’.
This can be a long process and can take several months. In the meantime, your family could be suffering financial hardship following your death.
By placing insurance policies in Trust, the need for probate will be avoided as long as there’s one surviving Trustee when you die. This is because the Trustees are the legal owners of the plan, and can deal with the Trust property immediately, making sure your chosen beneficiaries don’t suffer financially after you die.
One of the most common reasons for taking out a protection plan is to provide for your family after you die. By writing the plan in Trust, you can make sure that the proceeds of the plan are paid to them without delay.
Do I Have To Take Out A New Plan To Put It In Trust Or Can I Use An Existing One?
The majority of new protection plans can be written in Trust but changes to existing policies are not always possible, depending on your insurer. Business protection and Relevant Life Plans must be written in Trust from the start.
However, you may want to review your plans to make sure they’re still right for you. We can carry out a review of your plans and recommend appropriate Trusts for them.
Trusts as you can see are very important. For more information or to see how we can help,
please call John Ireland now on 0208 547 2583