Why Use a Trust for Estate Planning?
A trust is considered to be one of the oldest forms of financial planning in human history. Historians believe that the practice can be traced all the way back to the 12th Century during the times of the Crusades. A rudimentary but still recognisable version of the concept has even been traced all the way back to the Roman Empire.
If trusts have been, in some way or another, in practice for hundreds and hundreds of years, then why do most people not understand them? Why do so few people know what they do, what the benefits are, and why use a trust for estate planning in the first place.
The following blog will answer all of these questions and more.
Do I Need Estate Planning?
“Why do I need estate planning?” is a question many will ask at some point. In short, you need estate planning to ensure that your final wishes are followed upon your death. Proper estate planning is vital in ensuring that your family are accounted for and protected against any eventuality.
It could also be argued that the most effective answer to the question of ‘do I need estate planning’ should centre on what would happen if you were to die without effective estate planning. Generally, should a person die without any will or other measure of estate plan in place, their estate will be judged against the laws of intestacy.
For more information on what happens if you die without making an estate plan, check out our blog going into detail on the subject.
Reasons why you need estate planning includes:
Protect and Care for Family
The first and foremost reason to create an estate plan surrounds ensuring that all your nearest and dearest are accounted for, shielded from any negative possibilities, and ensure that they are provided for and looked after.
This can come in the form of leaving behind some money or a treasured item for them to have after you are gone, making sure that somebody has a place to live by giving them your property, or assigning guardians so that any minor children under your care have somewhere safe to go.
Minimise Family Dispute
Relatives seemingly appearing out of thin air to attempt to take advantage of a death in the family for their own gain is an unfortunately common cause for significant familial dispute post-bereavement. This sort of argument can, if left unresolved, result in years of resentment.
In order to minimise these serious family arguments, it is important to clearly state who you plan to leave all of your valuable assets to.
Limit Common Tax Issues
A benefit of estate planning that many may not be aware of, proper estate planning can significantly limit the impact of all forms of HMRC and inheritance tax on your estate, and therefore on your loved ones.
This efficient planning guarantees that your loved ones will be afforded the luxury of receiving significantly more of your estate. The most common methods of limiting inheritance tax when estate planning includes giving gifts to loved ones (seven years) prior to death and placing your assets into a trust.
For more information about how to most benefit your loved ones when estate planning and ensuring that they are not impacted too heavily by inheritance tax, contact a specialist who will be able to advise you on the key next steps.
Do I Need a Trust or Just a Will in the UK?
In the UK, you don’t need both a trust and a will. It is perfectly acceptable for a person to be happy with just a will alone. However, while you don’t need a trust, it is highly recommended if you want the maximum amount of control over your estate and what happens after you have died.
Both wills and trusts should be seen as a valued part of a comprehensive and all-encompassing estate plan. In many cases, having both a trust and a will can be highly beneficial. It is even possible, if set up efficiently and with foresight, for a will and trust to operate in tandem with one another.
Having both is best-practice as generally, a trust will cover specifics of a situation, of a certain asset, or in a certain situation; while a will concerns a wider spread of your estate as a whole.
It should be noted that if there are ever any conflicts or overlap between a trust and a will, in most cases, whatever is set out in the trust will take precedence.
Generally the option of a trust and a will is seen as better. However, this is unlikely to be true for anybody with a small, simple to organise estate. In this situation a common will is likely to suffice. Conversely, anybody with a large, complex estate will likely hugely benefit from the additional security of the more detailed fiduciary agreement.
Why Use Trusts for Estate Planning?
Working out why you should use trust for estate planning requires some forethought. A well-planned trust can work wonders to provide for and support under 18s or anybody deemed unable to manage their money, protect your estate and most valuable assets against any possibility.
One of the most commonly misunderstood parts of estate planning, with very few people out there truly understanding the concept. The benefits of using a trust for estate planning include:
- Provide for a person under 18
- Have a larger say in when money is released. This is particularly handy for people perceived to have poor money management
- Provide funding for specific purposes (education, weddings, etc.)
- Protect your estate and assets from any possible divorce down the line
- Protect your estate and assets against bankruptcy and from creditors
- Minimise inheritance tax to ensure that your loved ones are able to receive as much of your estate as possible
- Better tailor what happens to high value assets. For example, you would be able to leave your share in a house for children, while stating that the remaining parent must be able to remain in the property.
- Protect assets from nursing homes
The benefits of creating a trust when doing your estate planning can vary depending on the size of your estate, what point in life you are, or what you are provisioning for.
How Our Estate Planning Consultants can Help
While it is commonly known that you need a will before you die, or be forced to face the laws of intestacy. However, trusts are one of the most misunderstood estate planning tools. The benefits that can be associated with using a trust for your estate planning in addition to a regular will are clear.
A will should be seen as the base on which to build your estate plan, particularly if you have a wide-reaching and complex estate. Both wills and trusts come with their own positives and negatives — but it is only together that both are allowed to be at their most effective in protecting you and your assets.
While the benefits are obvious to see — the actual process of creating an all-encompassing estate plan can be incredibly difficult. No matter how big or small your case, your estate plan is likely to be highly complex with a variety of moving parts present throughout the process from start to finish.
For the most complex estate planning, to ensure that your best interests and those of your nearest and dearest are catered for, it is vital that you deal with the experts.
Just Wills and Legal Services boast a specialist team of legal experts who have been assisting people from all walks of life for decades with their wills, probate, trusts, estate planning, power of attorney, and much more.
For peace of mind paired with an efficient and effective service, contact Just Wills and Legal Services today.
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