Using trusts to plan your legacy

  • Posted

Do I need a trust? It’s a question many people ask when they come to write their Will and plan their estate.

There are myriad different kinds of trust arrangements, ranging from discretionary to life-interest trusts.

Increases in the inheritance tax threshold mean that for most people with joint assets worth less than a million pounds, creating a trust makes very little difference to inheritance tax on their estate.

However, the benefits of trusts go beyond simply reducing a tax burden. While no two trusts are quite the same, here are some situations where trusts may come in handy.

Benefits of trusts

When someone lacks capacity

If you plan on leaving money to a beneficiary who doesn’t have the mental capacity to manage large assets (or even to manage money at all) then a trust can be of help.

A trust deed can specify under what terms the trust assets can be used – for example, it may be possible for a beneficiary to receive income from shares placed in trust, but not to the shares themselves.

In conjunction with a well-drafted Lasting Power of Attorney or a Deputy order from the Court of Protection, trusts can be used to make sure that a relative who lacks capacity to make decisions will be well looked after if you’re concerned about what might happen to them after you’re gone.

When someone struggles to manage money

Suppose you want to make sure that someone is taken care of financially after you pass away, but you recognise that they have difficulty managing their money and day to day responsibilities. Families are faced with such circumstances all too often, when a relative struggles to manage debts or has health issues such as addiction that might impede them from using their inheritance responsibly.

Much as when a beneficiary lacks capacity, there are ways that a trust can be used to allow a person to benefit from the assets within it, without yielding total control over those assets. For example, a property could be placed in trust for a beneficiary to live in for as long as they need it, but not to sell it or secure debts against it.

Investments could also be placed in trust in order to provide a beneficiary with a steady income, whilst ensuring that the capital assets couldn’t be sold and squandered.

When the beneficiary is a child

If you intend to leave a substantial amount of money to a child under 18, you will need to consider making trust arrangements in your Will so that the child’s inheritance can be managed until they reach adulthood. The trustee(s) will be able to invest the money on the child’s behalf in accordance with your wishes, but won’t have access to the money for personal use unless certain contingencies are realised.

When you’re concerned about care fees

Under current rules, if you need care later in life local councils will means test you to decide whether you’ll need to meet the costs of your own care or not. The threshold they use to decide this is £23,250, much less than the value of most people’s homes.

Sometimes, placing a property or other assets in trust can protect them from being counted towards the £23,250 limit, thus shielding them from being sold to pay for care and keeping them safe to pass on to children or grandchildren. However, this is a complex area of law and individual circumstances need to be considered carefully to ensure that a trust would actually help.

Further information

For more information on estate planning and the use of trusts in your Will, or to protect assets from care fees, call us on 0117 325 2929 or complete our 
online contact form.


    How can we help you?

    We’re here to help. Please fill in the form and we’ll get back to you as soon as we can. Or call us on 0117 325 2929.