25 September 2018

Financial Planning with Trusts

I have written about Trusts a number of times over the years (click on "Trusts" in the Labels index - on the right of the main blog page to see). Mostly I have started with the reason you might want a trust. Here's another way of looking at it, though - a list of different types of trust and where they might be useful.

Expertise is needed, though, not only to help select the appropriate trust, but also to advise on how the money put into trust should be invested. Note that Inheritance Tax-efficient trusts generally require 7 years to be outside your estate.

Absolute trust
A simple (but inflexible) solution where you do not require access to the capital held in trust and know who you want to leave the money to.

Discretionary trust
Keep control and have flexibility over how wealth is distributed. Effective for Inheritance Tax in most cases.

"Best start in life" trust
A discretionary trust that enables you to pass on wealth in an IHT-efficient way, and can provide for tax-efficient payments for the benefit of children.

Reversionary ("lifestyle") trust 
Has an option to take back a fixed proportion of the value each year. What remains is outside your estate after 7 years.

Excess income trust
Build a nest egg for beneficiaries, free of IHT.

Discounted gift trust
Receive regular fixed payments for life with the balance passed to beneficiaries.

Loan trust
Since it's a loan you still have access to the capital. But any investment growth is outside your estate for IHT purposes.

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