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Building and protecting your wealth

Introduction to Trusts

Trusts are a great way to protect, preserve, and ultimately distribute your wealth. They should be a part of your inheritance tax plan. You can put your assets in trust either while you’re alive or include them in your will as part of your estate plan. Here we take a closer look at trusts.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

What is a trust?

A trust is a legal arrangement where you can transfer the ownership of someone’s assets (such as property, shares or cash) to someone else (usually a small group of people or a trust company) to manage and use to benefit a third person (or group of people).

There are different kinds of trusts that you can incorporate into your tax plan. What kind of trust, the value of assets put into it, and who the beneficiaries are will all dictate how planning is handled. Plus, the rules regarding trusts and tax are constantly changing, and some are more favourable than others. But they can all help to reduce how much tax you ultimately pay.

Putting your assets in trust provides more flexibility than directly gifting to a beneficiary. For example, you might want to wait until your child is older before you allow them access to an asset. Or you want to ensure that your spouse can also benefit from the asset during their lifetime before passing it along to your children.

What types of trust are there?

There are a few different structures into which you can transfer your assets in order to protect them and give your family lasting benefits, but there are generally two types of trusts to choose from.

1.     Bare (Absolute) trusts
In this kind of trust, beneficiaries are entitled to a specific share of the trust, which is fixed when the trust is established. The person who puts the assets in trust (the settlor) decides on the beneficiaries and shares at the time they set it up.

2.     Discretionary (Flexible) trusts
The settlor decides potential beneficiaries, but the trustees can use their discretion to decide who, when and in what amounts the beneficiaries benefit. This kind of trust provides more flexibility and therefore, is often called a Flexible Trust.

Tax planning professionals

Everyone’s tax circumstances will be unique and your tax and financial planning needs will depend on your individual situations. Plus, it’s generally a very complicated area of finance so it’s wise to work with a professional to take care of your tax planning needs. If you have questions about trusts, get in touch with us and we can begin tax planning today.


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