The benefits of trusts in Estate Planning


Estate planning is best described as planning forthe transfer of assets to the next generation(s) in the most tax efficient way, while talking account of the legal obligations to dependents.  It is worth considering the use of trusts - for both life time gifts and for an inheritance passing under a will. 

What is a Trust?

A trust is a legal device created to deal with themanagement of property on behalf of another person. 

The settlor is the person who places the asset intrust.  The trustee is the person who holds the legal title to the asset but not the beneficial interest.  The beneficiaries are the people that the settlor wants to benefit from the assets. The trustees hold the title for the benefit of the named beneficiaries. The trustees cannot benefit or obtain any personal advantage from their position as trustee.

Once a trust is established the settlor generallyloses all rights to the property unless he/she retains a power of revocation.

There are various types of trust and I briefly definebelow a discretionary trust and when it may be useful.

A discretionarytrust arises where trust property is held by trustees on trust to apply theincome or capital for the benefit of specified beneficiaries in such proportion as the trustees in their absolute discretion think fit.  The beneficiaries have no interest in the fund for legal or taxation purposes and they cannot call for distributions in their favour – they can only ask to be considered. The settlor can provide the trustees with a letter of wishes (which has no binding effect) indicating how he/she wishes the trust fund to be managed.

A discretionary trust may be considered useful for thefollowing purposes:

(i)            To ring-fence and protect certain assets

(ii)           To hold asset for young children (assets either passing on death or during lifetime)

(iii)          To preserve assets for future generations – rather than passing all assets to the next generation only

(iv)         To provide for a child with a disability

(v)          To provide for children who cannot manage their own affairs (for reasons other than a disability)

(vi)         To provide for a non-marital partner

For more information on OSK’s Estate Planning serviceplease contact Imelda Prendergast. Sign up to OSK's B2B for more information on EstatePlanning.

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