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Seven benefits of a trust fund

Expert guide: how to go about setting up a trust

Here at Hartley Fowler, we are pleased to provide a broad range of accounting and tax services to our private clients.

One of the subjects we are asked about most frequently is tax planning and specifically how to limit inheritance tax. When asked for strategic customised advice on how to limit tax liabilities, we often recommend setting up a trust.

In this article, we will look at the many benefits of a trust fund to manage your assets…

What is a trust and how does it work?

In simple terms, setting up a trust is a legal arrangement whereby a person transfers their assets – namely property, investments or cash – to another individual or group, known as the trustee/s.

The trustee/s manage these assets in the best interests of one or more named beneficiaries. While a trustee has legal ownership of the asset/s, they are required to manage them for the benefit of the beneficiaries, as per the trust’s terms (the trust ‘deed’).

Trustees have the power to make decisions about how to use the assets in accordance with the terms of the trust deed, including investment, distribution of income/capital to beneficiaries or holding onto the assets until a specific date. In addition, trustees are obligated to comply with all legal and tax requirements that relate to the trust.

Setting up a trust is a tax efficient way to ensure that you pass on your property, money or investments to those who you wish to benefit. However, it can be highly complex which is why we recommend seeking advice from an accounting professional.

What are the benefits of a trust fund?

Setting up a trust can be a key part of your wealth protection strategy – here are seven benefits of a trust fund:

  1. Preserve assets and minimise tax liabilities
    Depending on the value of your estate, a trust that has been properly structured can help you to limit or avoid the inheritance tax due on your assets. This enables you to pass on a bigger proportion of your wealth to your chosen beneficiaries.
  2. Manage assets effectively
    A trust can help you manage your assets. By appointing a trustee to act as guardian of your assets, you’ll ensure that your estate is managed according to your wishes and values. Trustees are required to ensure that your assets are distributed in a responsible and sustainable manner.
  3. Avoid probate
    The legal process of probate is normally required in order to validate a Will.
    However, setting up a trust allows you to pass your assets to your chosen beneficiaries without going through the complications of probate.

    We needn’t tell you that probate can be an expensive and protracted process. By contrast, setting up a trust avoids probate and ensures that your assets are divided and more easily distributed to your nominated beneficiaries.
  1. Protect your assets
    While this may not apply to many, a trust can serve as a way to protect your assets from certain threats against you. If your assets are held in a trust, they are not considered part of your personal estate. This means that they are protected from claims from creditors or lawsuits, for example.
  2. Provide for loved ones, family and younger beneficiaries
    Setting up a trust will give you reassurance and peace of mind about your assets. Your chosen trustees can fulfil your wishes on your behalf, taking care of family members and loved ones – even after you’re gone. Trusts are useful in cases where a beneficiary may not be considered ‘responsible’.
  3. Keep your wishes confidential
    A less frequently mentioned benefit of a trust is that they ensure privacy. Probate is a public process, whereas a trust affords confidentiality and keeps your financial decisions private.
  4. Protect against care home fees
    A trust within a Will can be used by couples who are concerned about the future cost of care home fees. If half a property is passed to a trust/beneficiaries on the death of the first partner, the main asset of the estate will be diminished by half and protected from being swallowed up in care home fees.

Setting up a trust to avoid inheritance tax

As a reputable accountancy, we would never recommend or condone that our clients set up a trust fund to avoid inheritance tax. Attempting to do so is a form of tax evasion which is illegal.

However, there are legal and legitimate ways in which we can set up a trust to reduce tax liabilities and we are happy to advise on this. For bespoke tax advice, unique to you, please call us today and make an appointment with one of our knowledgeable experts.

How to go about setting up a trust

Setting up a trust involves much thought and consideration – and we are here to help. You must select a trustee or trustees and name your chosen beneficiaries before we can draft your trust document.

Instead of setting up a trust to avoid inheritance tax, we find completely legitimate ways to preserve your assets. We can deal with your trust accountancy matters, giving you the reassurance of a compliant and watertight plan for your assets.

As a specialist trust accountant, we can advise on how to set up and administer the optimal trust for you and your assets – we can help with:

  • Discretionary trusts
  • Accumulation and maintenance trusts for children
  • Interest in possession trusts

We will discuss your requirements and assets before suggesting the most appropriate solution to align with your personal circumstances.

What’s the difference between a trust and a Will?

A Will and a trust both refer to how assets should be distributed to your beneficiaries. While there might seem to be some similarities and even overlap, there is a significant difference between a trust and a Will.

A Will is about the administration and distribution of your estate after your death, whereas a trust can specify the management of your assets both during your lifetime and after your death.

If a trust is created and incorporated as part of a Will, it will only apply once the administration of the estate is complete. However, as mentioned, a trust can be a lifetime document, meaning that it can take effect immediately.

Call our trust accountancy specialists

Hopefully this article has shed some light on the many benefits of a trust fund as a strategy for practical asset management and tax planning.

If you have any questions about our trust accounting services, please contact us today. Alternatively, for helpful tailor made advice, please book in for your free initial consultation with one of our expert trust accountants.