When it comes to estate planning and protecting your wealth, Trusts are among the most powerful tools available. Many people shy away from them, though, thinking they’re only for the wealthy, or that they’re overly complicated.
In fact, Trusts can benefit a wide range of people — from parents wanting to provide for their children to individuals looking to reduce the amount of inheritance tax payable on their estate.
Let’s break it all down.
What Is a Trust?
A Trust is a legal arrangement where one party (called the Settlor) transfers assets — like Money, Property or Investments — to another person (the Trustee) to hold and manage on behalf of a Beneficiary.
You’re essentially saying, “Here’s something valuable. I want you to look after it and eventually pass it on to someone else, based on the rules I’ve set.”
This structure has the advantage of giving the Settlor control, even when they’re no longer around.
The Key Roles in a Trust
- Settlor — the person who creates the Trust and places assets into it
- Trustee(s) — the people or organisations responsible for managing the Trust
- Beneficiaries — the individuals who will benefit from the Trust
Two Common Types of Trusts
1. Lifetime Trust (also known as an Inter Vivos Trust)
This is set up while the Settlor is still alive. A popular example is placing a life insurance policy into a Trust. This means that the payout doesn’t form part of the Estate when the Settlor dies, which can often help avoid inheritance tax and protects the proceeds for children or dependants.
2. Will Trust (also known as a Testamentary Trust)
This type of Trust is created in a Will and only comes into effect when the Settlor passes away. It’s a great way to control how your assets are distributed long after you’re gone. It can be used, for instance, to provide for children or vulnerable beneficiaries in stages or under specific conditions. For example, a beneficiary may receive some or all of the inheritance on reaching the age of 25.
Why Might You Consider a Trust?
- To protect assets for children or vulnerable loved ones
- To avoid probate delays
- To reduce Inheritance Tax liabilities
- To maintain control over when and how money is used
- To safeguard family wealth from divorce settlements or creditors
Final Thoughts on Trusts
Setting up a Trust isn’t just for the wealthy — it’s a smart estate planning move that can give anyone peace of mind and clarity for the future. However, the setup and tax implications can be complex.
Do you want to know if a trust is right for your situation? Contact us at Grace Certified Accountants on info@gracecertifiedaccountants.co.uk for a personal consultation.