Understanding UK Trusts: Protecting What Matters Most
Trusts aren't just for the wealthy elite or complex tax planning. They're practical tools that help everyday people protect their assets and take care of the people they love.
Scenarios where a trust might work for you
Childrens financial security
Possible Trust solutions:
Bare Trusts are relatively simple and the beneficiary has an absolute right to the assets at age 18
Life Interest Trusts are more complex and offer more control but may have different tax implications
You can set aside money or property that's managed by trustees until your children reach adulthood. These types of trust can be used for education expenses or first home deposit.
Sarah and Mike Jones, both teachers, bought their home 20 years ago for £150,000. It's now worth £400,000.
When the first partner dies, their share goes into trust. The surviving partner can live there for life, but half the house is protected.
Financial security in a blended family
Possible Trust Solutions: Interest in Possession Trust Your partner can receive income from the trust during their lifetime, with the capital passing to your children after your partners death. This set-up can prevent potential family disputes as it ensures everyone is provided for.
David Williams, widowed with a teenage daughter, married Jane Smith, who has a young son.
Their challenge as a couple is to ensuring all children are treated fairly and they are both provided for in their lifetime.
This trust structure means that the surviving spouse can live in the house and receive income from investments, but can't sell the assets meant for the deceased's children.
Business owner and a smooth succession
Possible Trust solutions: Discretionary Trust This gives flexibility to manage business assets and can help with business continuation and tax efficiency.
Priya Kumar built a successful local restaurant chain. Her concern is that the business might need to be sold to pay inheritance tax after she dies.
By using a discretionary trust, the business shares are placed in trust, qualifying for Business Property Relief.
As a result, her children can take over the business without a massive tax bill forcing a sale
Safeguarding your home from inheritance tax and/or care home fees
Possible Trust Solutions: Property Protection Trust or Family Protection Trust This solution places your share of the property in trust while allowing continued residence.
Mike and Jim’s house is worth £400,000 which they own jointly.
A trust means that the first partner's 50% share goes into trust on death and the surviving spouse can live in the property for life.
Meanwhile their children are named as final beneficiaries of the trust, which protects half the property value from inheritance tax, as it is removed from the estate.
There will be many more reasons why a trust might work for you to protect and control your assets in your lifetime and pass on to your chosen loved ones. Other reasons could relate to protecting a vulnerable child or loved one to ensure they are well cared for after you are gone, or perhaps you have inherited or won lots of money and you want to ensure your beneficiaries spend the money wisely; the list goes on.
Clarity and expert guidance is key when scenario planning to see if a trust is right for you. Please get in touch for a complimentary wealth check here.
Setting Up a Trust: The Basics
Choose your trustees: 2-4 is typical. Trustees administer the trust and ensure the Trust rules are followed.
Decide on beneficiaries. Who is the trust set up for?
Select the right type of trust
Seek professional advice, please get in touch here
Trusts aren't about complicated legal structures or tax avoidance - they're about protecting what matters most to you and ensuring your wishes are carried out effectively. Whether you're protecting your family home, providing for loved ones, or securing your business legacy, there's likely a trust solution that can help.
