Trusts have been a favourite vehicle in financial planning and asset protection for centuries. Tax mitigation is often the key element in setting up an offshore trust but they also offer many other benefits which you may not be aware of. They are very useful when it comes to the control and preservation of your wealth, for today and the future.
The person who sets up a trust is known as the ‘settlor’. The people, companies or charities named to benefit from the trust are the ‘beneficiaries’. With some types of trust, the settlor can be a beneficiary.
The company managing the trust for you are the ‘trustees’ who follow the ‘trust deed’ – the agreement which lists the assets within the trust, names the beneficiaries and sets out the duties and powers of the various parties to the trust. You can also provide them with a ‘letter of wishes’.
Most types of assets can be placed within your trust, including equities and bonds, investment portfolios, bank deposits, life assurance policies, jewellery and property.
Let’s look at the various benefits a trust has to offer.
They are particularly useful when it comes to estate planning and ensuring your assets are used to help your family, according to your wishes. A straightforward example is where you want to leave your money to your spouse if you die first, but know that he/she is not comfortable with financial planning.
You can set up your affairs to look after your spouse, and on your death the trustees will carry out your wishes and your spouse will not be burdened with the financial decisions.
You can do the same to look after yourself should you become incapacitated in the future (for example, if you develop Alzheimer’s disease). Should this happen before you give power of attorney, the courts may need to get involved to allow someone else to manage your money. With a trust, this will be avoided, you can even name the nursing home you would want to be looked after in and the trust will settle costs from the trust fund.
Trusts can also prove invaluable for complex family situations, for example if you, or your spouse/partner, have children from previous relationships. You may want your assets to pass to your partner on your death, then on his/her death to your children (and not to your partner’s children, though obviously this could be arranged as well if you wish).
You may trust your partner to carry out your wishes but intentions can change or circumstances intervene. For example, a subsequent remarriage could end in divorce, with your assets passing to the subsequent spouse and his/her children. A suitable trust will address such uncertainty and ensure that your assets are only gifted to those who you intend.
Many people set up trusts when they leave money to a child. If the child is a minor they will not have legal capacity to establish contracts, but the trustees would do this instead. You would also stipulate when you want the beneficiary to receive the money.
If you are worried they would spend it inappropriately, a trust could help prevent this – for example, by deferring inheritance age until they are older or arranging it so they have to ask the trustees when they want funds, so the trustees can prevent them making mistakes with the money.
You could arrange for them to just receive an income, until such time as they need a lump sum (for university fees, house deposit etc).
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A trust could also protect your assets should the beneficiary suffer a divorce or bankruptcy.
While most people will stipulate who th
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