There are many different reasons why you may consider putting money into trust. The following are some of the main ones:
- To make prudent provision for your family and later generations in case of unforeseen circumstances.
- To assist in tax planning. Setting up a trust may help to reduce tax liabilities and can be especially helpful in minimising potential Inheritance Tax liabilities.
- To make a gift with conditions based on your wishes or the beneficiary's circumstances. You can set down guidelines on how your trustees should deal with the trust, and at what age and in what circumstances your intended beneficiaries can have full benefit from the trust.
- To protect assets where, for whatever reason, you think it appropriate that assets are placed in trust rather than allowing a beneficiary full freedom to dispose of them.
Your biggest beneficiary!
One of the main reasons why people consider creating a trust is to mitigate Inheritance Tax (IHT). If when you die you were to leave an estate of £700,000 between 3 children then the Inland Revenue would be your biggest beneficiary with an IHT liability of £180,000.
The government tells us that only 4% of estates pay IHT. At first glance this may seem surprising given that IHT is payable on assets in excess of £250,000 in the 2002/2003 Tax Year (subject to various exemptions and reliefs). The reason that more estates do not pay IHT is that the tax is largely voluntary!
There are many ways of mitigating or avoiding the tax burden but the most common way is to give away assets during your lifetime. Whilst this can be achieved by way of an outright lifetime gift, there may be reasons why this is not appropriate. See above for reasons why people would consider creating a trust.
Higgisons Trustee Service is only appropriate for clients domiciled in England and Wales and the Trust is to be created in accordance with UK law.