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What are Trusts?
Imagine you’re a pirate. Wooden leg, eyepatch, parrot on shoulder, the whole shebang. Long John Blogreader. Now, you’ve been plundering your whole life and you’ve got loads of booty. But in your old age you’ve become a responsible pirate. You stop thinking about krakens and cutlasses and scurvy and you start thinking about your future. You look out with a telescope from the crow’s nest, examining the horizon. No matter how much you look, you’ll never know what the future holds, you solemnly realise. A single salty tear falls from your unpatched eye and splashes on the water-logged deck below.
You decide you need to take action. Who knows what might happen? First things first, you need a Will. Next, you take your chosen booty and you lock it up in a treasure chest (Trust), probably underneath a skull and crossbones, ‘cos you know… pirates. Then, you give keys to your chest to a couple of your mates that you trust (pun intended). You leave them the specifics of where you want your treasure to go when you’re gone – maybe you’ve got some little sea-pups at home, or maybe you just want to leave it to your crewmates.
Then, if you do get eaten by a big tick-tocking crocodile, you know that your treasure’s safe, secure, and ready to go wherever you want. And that’s basically how Trusts work – minus all the pirate stuff, obviously.
There’s three main components to a Trust – the testator, the trustee(s) and the beneficiary.
- The Testator – the one putting the assets (treasure) in the Trust. Long John Blogreader.
- The Trustee(s) – the person, or people, managing the Trust on a day to day basis. They have access to the Trust and carry out the Testator’s wishes. The mates Long John gives the key to the chest to.
- The Beneficiary – the person, or people, who benefit from the Trust. Long John’s kids, or whoever he decides he wants his assets to go to.
The Testator is the person who sets up the Trust. They put their assets in and choose the Trustees. They leave instructions for the Trustees on how they want the Trust to be handled and who they want their assets to pass to. The Trustees carry out the wishes and look after the day-to-day running of the Trust, like paying any tax. They also make sure the Beneficiary gets their share.
The Beneficiaries don’t have to do anything, really. They might have to meet some stipulations if the Testator writes them into the Trust, like graduating from university before they get their share, but generally they just sit back and enjoy the benefits. Alright for some, innit?
Why should I consider putting assets in Trust?
But why choose a Trust? Isn’t it basically a Will? Well, it’s similar to a Will, but they aren’t the same thing. A Will outlines your wishes when you die. A Trust is a way of protecting your assets and property.
Protect your Beneficiaries’ assets
Long John knows he’s got to pay tax. You can’t avoid pirate taxman, scourge of the seven seas. Guy’s always swooping in like a seagull after an ice-cream. But if Long John locks his treasure in a Trust, although he does still have to pay the taxman, he’s helping his Beneficiaries out – they might not have to.
‘Cos once the treasure’s in the Trust, it’s locked away. You have to pay some fees to keep it locked, but as long as the Trust’s in place, the treasure’s safe. Then, when the taxman comes sniffing around Long John’s Beneficiary’s assets, he can’t count those in the Trust. The Beneficiaries don’t technically own them – they belong to the Trust. The chances of them hitting the Inheritance Tax threshold (£325,000, potentially rising to £1 million depending on the circumstances), are a lot slimmer.
If, for whatever reason, the Trust’s dissolved, the treasure’s not protected anymore. It’d still go to the Beneficiaries, but it’d go directly into their assets and form part of their estate. The taxman can count it and the chances of him plundering are a lot higher.
Assuming the Trust doesn’t dissolve though, they’re a handy way of making sure your Beneficiaries assets are protected.
Long John Blogreader’s got 2 kids. He loves them, but they don’t half test his patience. The other day he heard one of them say ‘hello‘ rather than ‘ahoy there ye scallywag‘ and, after he’d picked his jaw up off the floor and recovered his composure, he swore they weren’t touching their inheritance until they turned 25.
A Trust lets you do this. You can decide at what age your Beneficiaries receive their share. If you don’t think they’re quite mature enough or you want them to meet certain criteria before they get access, you can write this into the Trust. The power’s in your hands. Long John, for example, writes into his Trust that the kids can’t access it until they’re 25 – when they’ve definitely learnt their p’s and q’s and arrrrs.
Long John’s other kid is engaged to a man he doesn’t like. At all. In fact, he’d love to make him walk the plank. Long John hates the idea that if he dies and his daughter ends up marrying the rapscallion, if they divorce, this guy could end up taking half of his daughter’s inheritance.
If you put your property and assets into a Trust, although your Beneficiaries can benefit from them, they don’t technically own them – it won’t form any part of their estate. So if Long John’s daughter does end up divorcing the ne’er-do-well husband, her inheritance, locked away in a Trust, doesn’t form part of her assets. There’s no chance he can get his filthy mitts on her inheritance.
Another way sideways inheritance might work is if your surviving partner remarries after you’ve gone. If you’ve got kids, but you left all your assets to your partner, you don’t know where those assets are going to end up. There’s absolutely no guarantee your kids are getting them. Your partner could leave all the assets to their new spouse. If your partner dies without a Will, the rules of intestacy take over – I won’t go into full detail of them now, but if that’s the case your kids will lose out on a very significant chunk of their inheritance. Maybe even all of it.
With a Trust, you can make sure that your assets go exactly where you want them to go. I know that’s the whole point of a Will, but even with a legally sound Will circumstances can change, and when they do and you’re dead there’s nothing you can do about it. With a Trust, you can decide exactly who gets your money – there’s no chance of anyone you don’t know inheriting it when things change.
Making a Trust
If you’re wanting to set up a Trust alongside your Will, all you need to do is get in touch. If you’re interested, why not book a call one of our specialists? Tell us your circumstances and what you’re wanting from the Trust and we’ll do what we can to advise you. There’s loads of different Trusts, and you can add clauses and stipulations as and when you want. We’ll help you find one that works for you.
Jeez, that was pirate-y, wasn’t it? I need a bottle of rum.