Have you ever thought that trusts are only for the super-wealthy or too complicated for you to understand? Well, here’s why you could be wrong...
“If your answer to either of those questions was yes, you wouldn’t be the first to make that mistake or believe in some of the common myths that surround trusts,” reveals Adam Matthews, a trusts specialist at Hertfordshire law firm Debenhams Ottaway.
“It’s for this reason that we make the world of trusts as clear as possible, so people are confident to use them to benefit their family’s future.”
Trusts can be an effective way of managing your wealth now and in the future. A trust is created when you give assets to people you choose (the trustees) to hold for the benefit of others (the beneficiaries). It can be set up during your lifetime or upon death and can be used as a practical tool for inheritance tax planning.
Below, Adam explains how trusts work and dispels five common misconceptions that people have about them.
1. Trusts are not just for the super-rich
“Trusts can be set up for a host of reasons,” Adam explains. “You don’t need to be worth millions to help protect your assets and offer security for your family.”
You can use a trust to set up an inheritance for your partner or children, to hold your pension, or shelter assets against care costs.
“Lots of people set an age for the trust fund to be released to their children or grandchildren,” Adam says. “This could be to ensure the beneficiaries receive money at an age when they are financially independent, more responsible and can use the money to benefit them and achieve their own life goals.”
2. Trusts can help provide financial security for vulnerable loved ones
Relatives, children or beneficiaries with learning difficulties may struggle to manage their finances, and if left with a large sum of money, may not utilise it efficiently.
“Trusts can help protect vulnerable beneficiaries,” Adam says. “You can appoint trustees to look after the trust fund on the beneficiary’s behalf, and decide how best to use the money for their benefit.
“Often people use trusts to help pay for care, support and living costs for their loved ones who may be suffering from a lifelong illness, mental health condition or learning disability.”
Knowing that there are secure and protected funds to help care for those you love the most after you’re gone can provide great peace of mind.
3. Trusts can be a tax-efficient way to handle your money
Although trusts aren’t entirely tax-free, consulting an expert for guidance can help you manage and mitigate inheritance tax and capital gains.
“I would always recommend speaking to a financial adviser and a specialist trusts lawyer who will help you understand the tax rules associated with your trust,” Adam shares. “They’ll make you aware of any change in legislation, for example, the introduction of the requirement to register most trusts with HMRC.”
Trustees are now legally obliged to disclose details of the trust to TRS (Trust Registration Service). Under the new rules, all existing trusts must be registered by September 1, 2022. Any new trusts must be registered within 90 days of being created.
“It’s important to be aware of these deadlines to avoid any unnecessary penalties, complications or criticism,” Adam adds.
4. The trust fund is easily accessed when needed
“Sometimes people are nervous about ‘tying’ funds up in a trust, believing they will have no control over the investment or that the money is locked away,” Adam shares. “This, however, isn’t true. If the trustees all agree that it is appropriate to release funds to a beneficiary, then it is a very straightforward process.”
“Trustees have a fiduciary duty to the beneficiaries and are held to the standard of the ‘prudent investor'. When managing the trust fund the trustees should consult a financial adviser for help with making investment decisions.”
You decide who to appoint as the trustees. The decision is very important because they are a vital cog in making the trust work for the beneficiaries.
“We recommend choosing someone who knows the beneficiary, their needs and the purpose of the trust. Pick someone who you can rely on to manage the trust fund, and who has agreed to take on the responsibility of a trustee,” Adam says.
“Our dedicated trusts team can help you identify potential individuals to take on the role and make you aware of the duties involved, so you can make an informed decision.”
5. Creating a trust doesn’t have to be complicated
“A trust can be an incredibly useful tool as part of effective estate planning but is also a complex area of law. If you decide to create a trust, it’s important to speak to an expert who can help you understand your options, future implications, and the legal process involved,” Adam says.
“Legal jargon can often deter people from using trusts as a wealth planning tool, which is why we’ve made it our mission to break down these barriers.”
Debenhams Ottaway is one of the few firms in Hertfordshire with a dedicated trusts team who can explain the different types of trusts available, understand your aims and discuss what steps you can take to reach them.
“We’re dedicated to providing practical, tailored advice that suits your lifestyle and helping you make the future a little less unpredictable and more secure for your family,” Adam says.
To find out more about creating a trust or registering an existing one, visit debenhamsottaway.co.uk.
Head to Debenhams Ottaway's new section for tips on how to appoint a trustee.
Contact trusts lawyer Adam Matthews on 01727 738228 or email am@debenhamsottaway.co.uk.
