The last decade has witnessed a number of legal reforms aimed at cracking down on the use of trusts as a potential means of tax avoidance. However, despite these changes, trusts can still provide an effective way to transfer wealth and thereby help families achieve their financial goals.
What is a trust?
A trust is a legal arrangement which allows assets, usually property, investments or money, to be managed by a trustee for the good of one or more beneficiaries. These beneficiaries can be named individuals, such as your children, and people who are yet to be born.
There are many different types of trusts with the main ones being: bare trusts, interest in possession trusts, discretionary trusts, accumulation trusts, mixed trusts, settlor-interested trusts and non-resident trusts. The type of trust that is right for you will depend upon your objectives and personal circumstances.
Advantages of establishing a trust Trusts can be set up for a variety of purposes with one of the main reasons as a tax planning tool in order to mitigate a potential Inheritance Tax liability. They are also commonly used to set aside money or assets for dependants who are either young or mentally incapacitated, and also to protect family assets particularly so they cannot be sold to pay for residential care fees.
In order to set up a trust, you will need to appoint trustees to look after the assets in the trust on behalf of the beneficiaries. A key aspect when creating or maintaining a trust will be ensuring ongoing compliance with current tax law. This will inevitably require professional advice in order to ensure the trust meets all of its tax obligations.
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