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Trusts Explained: Benefits, Types, and Management Guide for 2024

04 Jul 2024


Benefits of a trust

What is a trust?

A trust is a versatile and valuable legal tool for managing and protecting assets. By understanding what a trust is and how it functions, individuals can better appreciate its benefits and the various circumstances in which it can be advantageous.

In legal terms, a trust is a separate entity that can own assets, receive income, and, in specific situations, manage a business. It is created by a settlor, governed by its trust deed, and managed by trustees to benefit specified beneficiaries. Trusts are particularly useful for asset protection and provide special tax benefits for individuals such as those with disabilities.

This article will examine a trust’s key benefits and provide a better understanding of a trust

Benefits of a Trust

Trusts offer many advantages, making them indispensable tools in wealth management and estate planning.

Asset Protection: Trusts can shield assets from creditors, lawsuits, and other claims.

Privacy: Trust assets do not go through probate, keeping asset distribution private.

Tax Efficiency: Certain trusts provide tax benefits, reducing the tax burden on income and capital gains.

Control and Flexibility: Trusts allow the settlor to specify how and when assets are distributed to beneficiaries.

Support for Vulnerable Individuals: Trusts can be tailored to benefit disabled individuals, providing financial support without affecting eligibility for Government benefits.

Types of Trusts

Trusts can be broadly categorised into several types, each serving different purposes:

Discretionary Trusts: Trustees can decide how much income or capital is distributed to each beneficiary in these trusts. This provides flexibility in managing the trust’s assets according to changing circumstances.

Life Interest Trusts: These trusts provide a specified beneficiary with the right to receive income from the trust for their lifetime. Upon their death, the remaining assets typically pass to other beneficiaries.

Mixed Trusts: These combine discretionary and life interest trust elements, offering a tailored approach to meet specific needs.

Our Trust Services

Setting up and managing a trust requires professional expertise. WR Partners offers comprehensive services to ensure the smooth operation of your trust, including:

Drafting the Trust Deed: A solicitor must create a trust deed to establish the trust.

Trust Registration: We handle the registration of the trust with the Trust Registration Service.

Annual Accounts and Tax Returns: We prepare the necessary financial statements and tax returns for the trust.

Capital Gains Tax (CGT) Returns: We manage CGT returns for property disposals within the trust.

Income Estimates and Advice: We provide estimates and advice on the level of income available for distribution to beneficiaries.

Tax Implications of Trusts

Trusts have specific tax obligations that must be managed carefully:

Income Tax: Trusts receiving income must file tax returns and pay income tax, typically at the basic or highest rate, depending on the type of trust.

Capital Gains Tax: When a trust disposes of an asset, it must pay capital gains tax, similar to an individual. However, relief can sometimes be claimed to reduce this charge.

Inheritance Tax (IHT): Most trusts created after 2006 fall under the “Relevant Property Regime,” subjecting them to periodic inheritance tax charges every ten years and potential charges when assets are transferred to beneficiaries. Exceptions and reliefs may apply in certain situations.

Trust Registration Requirements: A trust must be registered as soon as it is created. This ensures compliance with legal requirements and enables proper management and reporting of the trust’s activities.

Conclusion

Trusts offer a robust mechanism for asset protection, tax efficiency, and tailored financial support for beneficiaries. Understanding the various types of trusts and their tax implications is crucial for effective trust management. With professional assistance from WR, establishing and maintaining a trust becomes a streamlined process, ensuring compliance and optimal benefits for all parties involved.

Specialised Expertise

Elizabeth Read is an experienced financial professional with a wealth of experience in accounting and tax advisory services. She joined WR Partners straight from A levels becoming a qualified accountant and tax advisor

With over 15 years of service in the Estates team, Elizabeth specialises in managing the affairs of High Net Worth Individuals and Trusts, ensuring the preservation of family wealth for generations to come. Her expertise spans in both compliance work, including preparing accounts and tax returns, and advisory work, where she crafts insightful reports to guide clients through complex business and tax issues.

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