Why You Can Trust A Trust With Your Assets

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by: bluespeckmedia
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Date: Thu, 27 Oct 2011 Time: 9:07 AM
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For many aging people there is a worrying assumption that assets will automatically be passed on to their nearest and dearest once they get older or pass away. Unfortunately, this is often not the case. Unless stipulated in a will or trust, assets such as property, savings, investments and even belongings will be divided according to law, meaning family members may not be even catch a glimpse of assets as they are put straight into the tax man's pocket.

Whilst writing a will is one way passing on assets, setting up a trust fund can provide a much more secure framework for asset management: particularly if your familial and financial circumstances are complex. Although more difficult to set up, there are many advantages of selecting a trust fund over a will such as the potential to avoid hefty inheritance tax laws. For others, a trust can protect assets given to more vulnerable beneficiaries.

Below are few examples of how and when trust funds can work in favour of different financial circumstances:

To control and protect family assets:

Doreen, 73, has lived in the same property all her life which is now worth £180,000. Unfortunately, she is now unable to look after herself and requires full term care in a care home. Currently in the UK, care home funding is worked out by each Local Authority through individual means testing. If assets, including property, total £23,000 or more then it is likely the individual will have to self fund their care home fees. Doreen does not have any savings to fund this care and does not want to sell her home. As the donor, Doreen decides to place her cottage in a property protection trust which is to be divided equally between her two grandchildren. Doreen does now not legally own the property and it will not be considered part of her means testing. She now hopes to receive full care home funding from the government.

To secure investments for a certain period of time:

Jill and Peter received bonuses from work totaling £50,000 which they have put into a savings account. They would like to donate this to their two sons towards their university fees. According to UK Inheritance Tax laws, only £3000 per year can be given tax-free as an annual gift allowance meaning their savings will be taxed at heavily. Jill and Peter avoid this by setting up a trust in which the money is to be divided equally between their two sons to solely cover the cost of university fees when they reach 18 years of age. Their uncle in the mean-time will act as a trustee.

When the donor has no obvious inheritors or beneficiaries:

Mary has never married or had children and lives in a sizable estate which has been in the family for generations. Mary would like her nephew Ben to receive her estate but Ben is only 5 years old. As the donor, Mary chooses to set up a trust fund for the beneficiary Ben stipulating that the estate will be transferred on Ben's 18th birthday. Until then, the estate will be managed by the trustees who are Ben's mother and father.

When beneficiaries are incapacitated:

John and his his wife are both in their 80s and have one daughter Sue who is mentally incapacitated. The donor or 'settlor' John decides to pass on some savings and investments to the beneficiary, Sue. Because she is incapable of managing her own financial affairs, John appoints Sue's husband and their son as trustees and writes in the trust deeds that assets can only be spent on Sue's care and hospital fees.

There are various trusts which can be set up and each can be adapted to your personal financial and familial circumstances. When embarking on any financial matter involving HM Revenue & Customs taxes and legislation it may be beneficial to seek impartial and independent financial trust advice.

About the Author

John T Hughes writes for Independent Financial Advisor, a service that connects consumers to financial advice they can trust, from pensions and annuities to mortgages, investments and savings.