19 March 2013

Using Trusts to Improve Financial Planning

I come across two basic attitudes to trusts when talking to clients. Either a trust is the answer to everything, or they are seen as too complicated to think about. Neither is actually correct - but they certainly have their uses.
 
A trust enables "somebody" - the trust - to own something, where that "somebody" is not a person or a company. Assets, such as money, investments, or property, can be gifted to the trust in order to bring about some financial planning benefit. Very often this is to save Inheritance Tax (IHT) or to ensure that assets are used in the way which the person making the gift (called the "settlor") intends.
 
So here are some ways in which trusts can be used:
 
1. To make money available to children - such as for house purchase - while protecting from a possible future divorce
2. To remove money from your estate to avoid IHT but allow it to "revert" to you in case it's needed for care costs in later life
3. To put money aside for future family events but avoiding IHT - a wedding (or golden wedding), or a world cruise later in retirement for instance
4. To provide for (grand)childrens' school fees
5. To make money available to the surviving spouse but without increasing their IHT problem if their assets are above the transferable "nil rate band" (or simply to avoid having to keep the records which are required to claim the transferable nil rate band)
 
Plenty of other opportunities exist, too. It certainly can be a useful planning tool, although both legal and financial advice should be sought.

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