What is a Trust?
Trusts date back to the early 13th Century during the period of Crusades. Knights going off to fulfil their duties would ask a friend or neighbour to look after their property until they returned. Over the centuries, numerous Acts of Parliament have been drafted to make Trusts a safe and secure way to hold your assets. Today Trusts enjoy a special status in the Law and are a part of everyday life. Many charities, schools and hospitals are a Trust. Your pension is a Trust.
Trusts are considered the gold standard of Estate Planning. They are incredibly useful and flexible and can help to protect your assets, reduce Probate costs, mitigate tax, stipulate when the beneficiaries may receive the asset and simplify the distribution of your Estate after you have passed away.
Types of Trust
A Living Trust, also known as a Lifetime Trust, involves the settlor (the person establishing the Trust), the Trustees (the persons who will look after and manage the assets in Trust) and the beneficiaries (who will benefit from the assets held in Trust). Assets placed within them are protected or ‘insulated’ from life's unfortunate events such as:
Furthermore, if you have children from a previous relationship, then it is a sure fire way of ensuring they receive their inheritance. You can stipulate when the beneficiaries receive the assets and retain full control of assets within the Trust while you are alive and have capacity. You are free to move home, or release equity from it at anytime, change beneficiaries or Trustees. It can help to keep the asset within the bloodline, what we call Bloodline Planning, thus avoiding sideways dis-inheritance.
A Living Trust really does pay for itself.
By placing your home into a Living Trust, your beneficiaries would avoid Probate, therefore saving 2%-5% on Probate fees. For example, if your home is valued at £300,000 upon second passing away, the saving on Probate fees equates to £6,000 - £15,000. Most properties that become part of the Probate process end up being sold as distressed assets, usually fetching 20-30% lower than the market value.
A Living Trust not only gives protection but also saves your family money on Probate fees. The asset can be sold immediately upon second passing away thus avoiding a distressed sale scenario.
A Will Trust, such as a Property Protection Trust (PPT) is a Trust that is written into a Will. It gives guidance to your executors who must create the Trust upon your passing away. The cost of creating the Trust, is paid from your Estate. This may be useful if you wish to create a Trust for either a child or vulnerable person.
it is important to note that a Will Trust does not protect your assets from life's unfortunate events such as divorce, bankruptcy, care fees, inheritance tax, sideways disinheritance, probate and so on.