Benefits of a Trust

Trusts have traditionally been used as a tool in succession planning to avoid death duties. A private trust is most typically employed in the present era to detach property or assets from a wealthy estate owner so that his or her estate is reduced with the consequence that the extent of inheritance tax on eventual death is reduced. The distinct benefits of employing a trust, as opposed to the direct transmission of property to beneficiaries, can be summarised, as follows:

• fiduciary control over assets and voting rights
• benefiting the younger generation without exposing assets to ‘youthful folly’
• income tax benefits for adult children
• income tax benefits for infants where the settlor is not a parent and the money effectively belongs to the child (often referred to as a ‘bare trust’)
• some measure of protection from creditors and estranged spouses

Possible disadvantages of trusts

The key issue for a potential settlor who is concerned with inheritance tax mitigation is, can he or she afford it? You should be sure that you have sufficient assets and pension funding to sustain your lifestyle, bearing in mind increasing life expectancy and the financial impact that low interest rates or continuing inflation may have.