Trusts to protect my assets for my loved ones

Why use Trusts?

Why do people use Trusts? Aren’t they just tax dodges for the rich?
Why are these structures set up in tax havens?
What different types of structures are available?
How do I retain control?
What else should I be aware of?
How much do trusts cost to set up and run?
Where can I find out more?

Why do people use Trusts? Aren’t they just tax dodges for the rich?

Not at all! Trusts can be used effectively by anyone who has any assets. First used in the 11th century, by Knights travelling to the Crusades to protect their interests while they were away fighting the good fight these feudal landlords appointed managers (Trustees) of their lands while they were away. The essential idea of trusts, is to protect a family’s long-term assets for future generations in a secure and controlled manner.

Trust structures enable the funds to be used for the benefit of family members or other beneficiaries such as Charities, without giving them control over the funds.

While trusts are often created for reasons other than tax, they can be used effectively for tax planning. This is particularly relevant to people moving from one tax jurisdiction to another, but also where someone wants to reduce inheritance tax costs without passing funds into the direct ownership of children or grandchildren.

Trusts also retain an important role in providing for the maintenance and care of those unable to look after themselves, such as bereaved minors, the disabled and the elderly, not to mention the irresponsible and feckless.

One of the key uses of Trusts is to protect your family home from assessment by the Local Authority against payment for Long Term Care so that you don’t join the estimated 100,000 people who have their homes sold to fund long term care every year.

Why are these structures set up in tax havens?

Providers based in offshore financial centres have specialist expertise in such structures, and using trustees in these locations allows tax neutrality at the trust level. This means beneficiaries can pay their own personal tax wherever they are resident.
Offshore structures are designed to be flexible enough to cope with beneficiaries in a wide variety of jurisdictions without exposing the family funds to excessive taxation. In an increasingly mobile world, it is important that structures are capable of coping with beneficiaries moving between countries.

What different types of Trust structure are available?

A patchwork of trusts and similar structures has developed throughout the world. The US and many of the British Commonwealth countries share a similar trust concept to the UK, while other countries have their own structures to achieve similar objectives.

Traditionally, the so-called civil law countries of continental Europe have not adopted the trust concept, UK Trusts are not recognised in France for example, Generally, they have their own structures based on corporate arrangements, including Liechtenstein foundations or Anstalts, German Stiftungen and Dutch Stichtings. Islamic waqfs separate legal ownership from beneficial enjoyment, often for charitable purposes, and are used to achieve similar objectives to trusts.
France and Germany also allow arrangements – usufruit and Niessbrauch, respectively – that enable the donor to give away an asset (to children, for example) while retaining the ability to enjoy its benefit during their lifetime in a tax-efficient manner.

How do I retain control?

It is important to ensure that Trusts are set up and not simply a sham with the donor retaining complete power over them. But part of the art of such arrangements is making certain that the structure is governed in accordance with the wishes of the settlor. The settlor usually prepares a letter of wishes for the trustees, to guide them when deciding how the trust should be administered. However, these wishes are not binding, which means that the trustees are able to adapt to changing circumstances, particularly after the settlor has died.

What else should I be aware of?

A vitally important but often overlooked point when establishing a Trust is that once assets are placed within the Trust, be it capital, investments or the family home, ownership of that asset now rests with the Trustees YOU, the donor are no longer the legal owner of that property.

A trust should only be entered into following legal advice that considers all of the donor’s circumstances and wishes. There are many pitfalls, including in the UK a potential 20 per cent inheritance tax charge on creation of a trust.

How much do trusts cost to set up and run?

The cost of trusts is highly variable and dependent on their complexity. A simple Absolute Trust may cost as little as £1,000 to establish. The more refined the structure, the more expensive it will be. A structure involving a private trust company may cost in excess of £100,000 to establish

There are numerous sites on the internet offering ‘free’ Trusts, or Trusts for £99. I would approach these with great caution Trust Law is an extremely complex area and an incorrectly established Trust could prove very expensive to undo, not least in that you could forfeit ownership of your own assets – which may not be your intention!
It is very much a case of you get what you pay for. We could write Trusts ourselves and save the not insignificant cost of using a Legal Services Company. However we prefer the peace of mind and knowledge that our clients are being professionally looked after by a firm that specializes in this area. We simply take your instructions, thereby keeping costs down, the actual work is undertaken by a professionally qualified Trust Company who retain all liability for the documentation.

Where can I find out more?

We have a preferred list of Solicitors and Trust Specialists who can provide you with any assistance or advice you may require in respect of Trusts, to determine who would be the most suitable of our legal partners to assist you please contact us.