Common reasons for creating a family trust include:
- Passing assets or funds aside for future generations
- The ability to place conditions on any inheritance (once the beneficiary reaches a certain age, gets married, graduates from university, etc.)
- Protect assets should you, or one of your beneficiaries, get married
- Make sure that your spouse is able to benefit from shared family assets (such as a family home) before they are passed on to children
- Minimise inheritance tax for your beneficiaries
A family trust is an excellent estate planning tool for anybody looking to put measures in place to both guarantee their legacy and ensure loved ones are to be cared for after you are gone.
In the UK, there are a variety of potential ways to set up your family trust, such as:
A simple trust requiring all assets to be handed over to beneficiaries upon them reaching a certain age (18+ in England and Wales and 16+ in Scotland).
Interest in Possession Trust
Entitles a beneficiary to receive income from the trust’s assets without having a right to the assets themselves until the grantor’s death.
Settlor Interested Trusts
The person who created the trust is able to keep some of the benefits or interest on assets.
A flexible trust. Trustees dictated whether to distribute income or capital, and how often payments are made.
A trust, for tax purposes, when trustees are not residents of the UK.
Accumulation and Maintenance Trust
Trustees can accumulate income generated by the trust and add it to the trusts capital.
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How Do You Set up a Family Trust?
Rules and regulations of trusts are highly complex, so the wording must be precise. The actual act of setting up a family trust will differ from person to person. However, the process should retain five core steps; Approach an expert consultant, decide on the assets, appoint a trustee, determine beneficiaries, and outline the terms.
If you’re looking to set up a family trust, it’s important that you include the following in your process:
Find Expert Assistance
Creating a family trust can be an incredibly complex process. It requires a firm hand with knowledge of what needs to be done, and how to do it. Failure to properly set out the terms of a family trust can lead to all parties being exposed to potential disputes, leave your assets potentially exposed, and result in inflated inheritance tax
If you’re on the lookout for a consultant to assist you in the process of setting up a family trust, it’s vital that you work with somebody who has experience and knowledge of all of the intricate details of the process. You will need a consultant who can tailor their service directly to your circumstances.
A consultant should also assess your situation in order to advise you on the best option for you.
Decide on Assets
When compiling a list of assets for your family trust, you need to attempt to value anything you want to pass down.
Assets that could be considered within a family trust include:
Appoint a Trustee
Trustees are vital in the upkeep and eventual carrying out of your family trust. When creating your trust you must decide who to appoint to the position. This decision should not be taken lightly — you should consider your options very carefully to ensure you select the right candidate.
The only two restrictions on who you can appoint as a trustee are that they must be over 18 and of sound mind.
The responsibilities of your trustee will likely vary from person to person. However, generally they are required to preserve the value of your trust, while always adhering to the terms set out.
Once plans are in place, you have a consultant on hand to ensure no mistakes are made, and you have appointed your trustee, the next thing to consider is who will benefit from your trust.
You must compile a list of any family members that will be entitled to assets held within your family trust. At this stage it is also important to include the amount that each beneficiary will receive.
Outline Key Terms
A trust deed is a legal document that sets out the rules dictating how the trust will operate. It is essentially a formal summary of every stage in the process. Your trust deed should outline the powers your trustee has, the assets held within the trust, the beneficiaries, details of how assets should be distributed, and more.
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Are you considering the future of your estate? Perhaps you’re thinking about what will happen to your loved ones after you are gone? Contact a consultant today and find out what a trust can do to secure the future of your nearest and dearest.
Asset Protection Trusts
An asset protection trust is intended to keep your estate protected against any eventualities. No matter how dire your financial situation becomes in the future, with an asset protection trust you can be sure that your estate is safe from creditors, lawsuits, etc.
Property Protection Trusts
Property protection trusts are excellent if you wish for your surviving spouse to remain in your family home after your death. In this scenario, your beneficiary would only receive total ownership of the property upon the death of both spouses.
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When Should You Set up a Family Trust?
It is always recommended to begin estate planning whenever there is an important milestone in your life, These milestones might include:
- If you get married
- You have a child
- After inheriting money
- Upon purchasing a home
It is also important that you consider updating your family trust at these junctures.
How Does a Family Trust Work?
A family trust is a legally binding agreement. When creating your family trust you transfer ownership of your assets to your trustee and they hold on to them on behalf of your beneficiaries. Your trustee is then responsible for managing the trust, maintaining its value, and once the conditions set out are met, ensuring that your estate is handed out accordingly.
How Much Does a Family Trust Cost?
It is impossible to say exactly how much a family trust will cost. The price of each trust will typically depend on the size of your estate and any potential complications that could arise as a result. It’s important to discuss your budget and future wishes with a licensed professional prior to making any estate planning commitments.
Just Wills & Legal Services will discuss all of this with you in an initial consultation before advising on future costs.