Trust funds. We’ve heard a lot about them, but not so much on how to use them. Here the expert lifestyle team from JW Hinks explains a bit about what they do, and how they can be used.
Simply put, a trust is a form of bank account, looked after by a trustee for the purposes of benefiting the recipient. Anything can be stored in a trust, from money and property to stocks and shares.
When you put assets into a trust, providing certain condition are met, they no longer belong to you, rather the beneficiary. So why use a trust at all?
Importantly, a trust can help pass down wealth without triggering Inheritance Tax (IHT). When you die, a trust is not considered part of your estate, and therefore not included in the final tax calculations.
Trusts are also popular with parents and carers, as they can stipulate the rules and conditions of how and when a trust can be used.
Here are some common examples of when you might want to use a trust:
- To save on estate taxes, known as Inheritance Tax (IHT)
- When you want to give money to someone, but not until they reach a certain age
- When you want to support a vulnerable or disabled person
- When you want to support someone over a long period of time
There are several variations of trusts, each with their own tax advantages and disadvantages. Likewise, some can be opened and used in your lifetime, while others can be written into your will. Most trusts will incur Income Tax, Capital Gains Tax (CGT), and/or Inheritance Tax.
The main types of trusts are:
- Bare trusts
- Interest in possession trusts
- Discretionary trusts
- Accumulation trusts
- Mixed trusts
- Settlor-interested trusts
- Non-resident trusts
Some trusts for disabled people or children get special tax treatment. These are called trusts for vulnerable beneficiaries.
Finally, when planning to open a trust, you must decide who the trustee and the beneficiaries will be. If you’re planning to write a trust into your Will, you must decide who the executor will be. Usually, the executor and trustee are the same person.
Have a question about trusts?
If you’re thinking about setting up a trust for someone, always seek expert advice. Working with recommended solicitors, JW Hinks can advise on the tax implications of trusts and all other aspects of estate planning. Call us today.