Trust Creation and Administration

Trusts have many advantages. They enable you to:

• provide financial support to a loved one who lacks (or has suddenly lost) the ability to manage their own affairs
• ensure that your money is used to provide for your needs if you become unable to take care of yourself
• take assets out of your estate to reduce how much tax your beneficiaries will have to pay when you die – ensuring that your hard-earned savings go towards looking after your family instead
• pass on your estate to your heirs without the time, cost and publicity of going through probate
• help protect your assets from legal action by creditors or other litigants
• appoint successor trustees who can manage the trust after you have passed on – enabling your family to grow and manage its wealth for the benefit of generations to come.
• Some people set up trusts to reduce their tax liability – or to mitigate the impact of care home fees in their old age.

Discretionary trusts continue to be a popular way of ensuring what happens to a family’s assets after a key breadwinner has died. That’s because they are useful for families in which one or both partners has remarried (where there may be children from more than one marriage).

Trusts are very versatile. You can tailor-make them to your family’s needs – that’s the beauty of trusts. 

You can create a trust to protect a lump sum of capital which is then distributed at a later date. Or you can safeguard the capital and treat it like the goose that lays golden eggs – distributing only some of the income but not the capital (which continues to grow).

Both these methods can be a useful way of ensuring that your children or grandchildren receive their inheritance only when they’re old enough and mature enough to invest or spend it wisely.

We hope you’re going to live to a ripe old age…but what if you don’t? What if your offspring receive large bequests while they’re still young and lack the knowledge and experience to handle such large sums prudently?

Trusts can be complex legal instruments. Your trust must be worded precisely to ensure it meets all your intended legal needs.

Specialist trust solicitors in our Wills and Probate team can advise on the creation of trusts and all aspects of trust administration including:

• trustees’ responsibilities and powers
• dealing with legacies to children aged under 18
• protecting assets from possible creditors
• taxation of trusts and efficient tax planning – especially with regard to Inheritance Tax. 

Not as much as you would think. Trusts are not just for the rich. It can cost as little as £800 plus VAT to create a trust – a cost you could recoup many times over in your lifetime as the trust will have reduced your tax liability.

And trusts are not just there to cut your tax bill; they are designed to give you peace of mind and greater control of the assets you wish to manage for the benefit of others.

Not surprisingly, trusts are becoming more popular as tax burdens increase and the pace of life accelerates.

But please be careful. Some non-solicitor organisations are capitalising on this demand by charging £3,000 or more to create trusts.

People who have come to us have discovered that we can set up the trust for them for a fraction of this price. And that the work will be done by our specialist trust lawyers.

If there is a matter of urgency then we can create a trust quite quickly, within a matter of days if need be.

But we would always advise you not to rush key decisions where trusts are concerned. It is important to consider what kind of trust is best for you and your family’s needs.

It is vital to get the details right – so time spent looking at all your options is time well spent.

There are various types of trust. They include:

• Bare trusts are often used to pass assets to young people. The assets are held in the name of a trustee. The beneficiary can access the assets at any time if they’re aged over 18 (England and Wales) or over 16 (Scotland).
• Interest in possession trusts (also known as life interest trusts) are better for people who need a steady stream of income. The trustee must pass on all the income (minus expenses) as it becomes available to the beneficiary (also known as the life tenant). These trusts are useful if you think your spouse could re-marry after your death and their new family could stand to inherit (putting the children from your first family at risk of receiving nothing). Shares from the family business could be held in trust to keep them in the family. A trust such as this can also save you from having to sell the family home to pay for care home fees.
• Discretionary trusts are often used to help people who lack the capacity to manage money for themselves (or to help children and grandchildren in the future). Trustees have the power to make some decisions about how the income will be spent. That includes how much is paid out in income or capital; who receives the money (and how often); any conditions the beneficiaries must adhere to.
• Non-resident trusts help people living outside the UK for tax purposes. Trusts of this type have complex tax rules.
• Mixed trusts combine various aspects of different types of trust.

Trusts are taxed differently depending on their type so it pays to get expert advice before deciding which is best for you.

People are living longer today and are more likely to require long-term care – which can be very expensive.

Are you worried your home would have to be sold to meet the cost of this care? Anxious that you may have nothing left to pass on to your loved ones?

It is possible to prevent this by making property trust wills. These contain a provision that – on your death – your share of the property can be held in trust for your children or other beneficiaries (while allowing your partner to live in the property for his/her lifetime).

In this way you can pass your share of the property to your children or other beneficiaries – and at the same time protect your partner.

Another benefit of property trust wills is that if your spouse/partner were to re-marry or enter into a civil partnership after your death, your share of the property would be preserved for your children or other beneficiaries.

This is an important benefit because getting married or entering into a civil partnership automatically revokes a will. So if your partner remarries (or enters into a civil partnership) and does not make a new will, his/her new partner and family may benefit from your share of the property. 

Local authorities are under increasing pressure due to budget constraints. The UK’s elderly population is growing but funding for care remains tight.

This is why councils carry out means testing. They will look very closely at trusts when considering your assets and whether or not to fund your long term care.

If your trust gives you absolute entitlement to:

• capital – the council will view this as an asset that you own
• income only – the council will not take the capital into account
• both capital and income – the council will treat both as assets.

Discretionary trusts are treated differently. The council can consider only what you receive in payment when ascertaining your means.

If you have been awarded damages for a personal injury then you should consider setting up a personal injury trust.

Why? The danger is that any compensation you receive could count against you if you are means-tested for Department for Work and Pensions (DWP) or local authority benefits – either now or in the future.

You may lose the benefits to which you might otherwise be entitled.

A personal injury trust puts the compensation received into safekeeping, where it should not be taken into account for state benefit assessment purposes. So any capital compensation awards placed in a trust are disregarded for means testing.

Without the creation of a trust, you could actually be worse off for having been awarded damages!

It is important to note that a personal injury trust’s structure does not remove the funds from the beneficiary’s estate for Inheritance Tax (IHT) purposes but could offer additional protection for the beneficiary’s family in the future.

At Coles Miller we have dealt with the creation of numerous personal injury trusts for clients who have been awarded compensation to fund treatment for the injuries they’ve suffered – so we can advise on all aspects of these trusts.

Think of your trust as a living thing. It needs to be managed properly, not left to drift as successive governments bring in legal changes.

Trustees must hold regular meetings to ensure that they’re managing the trust correctly and that it’s helping its beneficiaries as intended.

Sometimes there may be external factors – such as changes in family circumstances or legal reforms – that could have an impact on the trust. Matters such as these will require discussion and potentially input from your trust solicitor and/or your accountant and/or independent financial adviser.

In rare circumstances, trusts can be challenged in court. You will be better placed to fend off these challenges if you have accurate and up-to-date records of regular meetings held to manage your trust.

This is particularly important if you wish to demonstrate that your trust has a noble purpose and is not just a cynical way of avoiding Inheritance Tax, Income Tax or Capital Gains Tax.

Being a trustee carries certain legal obligations. These include declaring your tax liabilities. Our solicitors can advise you on the ongoing duties and responsibilities involved with managing a trust.

Contact Coles Miller today for expert help with creating and administering a trust. Please note you will likely require at least one face to face meeting with all Trustees in person at our offices in Dorset.