5 Reasons to create a Trust

Trusts can be a useful vehicle in a variety of different circumstances.

There are various types of trusts, which have different administration requirements and provide different rights to the individuals involved.

Rather than discuss the technical detail behind trust management and taxation, this blog considers five reasons why someone might want to set up a trust.

1. Protecting younger or more vulnerable beneficiaries

Creating a trust may be more practical than making an outright gift to someone.

By gifting an asset to a trust, the settlor (the person creating the trust) can retain some control over the asset given away.   This is because the settlor is often also a trustee and can therefore restrict the income distributed to the beneficiaries and prevent trust assets from being sold.

This can be particularly relevant when the beneficiary is deemed to be too young or vulnerable to take possession of a valuable asset.

       2.Guaranteeing the succession of assets

A trust can ensure that assets do not end up in the hands of an unintended person after a settlor has given them away.

For example, a trust arrangement can protect assets from creditors or stop assets being transferred outside the family circle in the case of a marriage breakdown.

        3. Tax Advantages

The tax rates that apply to trusts are not particularly attractive.  However, with careful planning these can often be mitigated.

Trusts can also be used for Capital Gains Tax and Inheritance Tax planning.

        4. To conceal the beneficial ownership of an asset

It is possible to use a trust to conceal who owns or controls an asset.  This information is provided to HMRC when setting up the trust but is not available to the general public.

         5. To benefit employees or charities

Trusts can be used to provide benefits to employees or as a vehicle to make charitable donations.

If you are interested in setting up a trust we can help you decide whether this would be appropriate. A trust deed must be drawn up by a suitably qualified person, such as a solicitor.

As tax advisors we can:

• Review trusts set up by solicitors to ensure that they are tax efficient
• Prepare the annual trust tax returns and deal with ongoing tax compliance work
• Prepare trust accounts
• Assist with decision making, for example when to pay out income to beneficiaries, sell trust property or transfer assets to beneficiaries.

Photo by Lauren Lulu Taylor on Unsplash