Managing assets through a trust fund

Opening a trust can help manage your assets in a tax-efficient way. For example, if you have school or nursery fees to pay, or you want to best prepare for any unexpected curveballs that life may throw at you. There are several great uses for a trust over and above the more common Inheritance Tax (IHT) benefits. 

What is a trust?
A trust is a financial mechanism for taking assets out of your estate and placing them into the protective ownership of a trust. It’s a safe and locked place that holds funds for somebody else’s benefit - this could be cash, property and/or assets. You can also set certain rules around who can access the trust, and what the contents are used for. 

We’ll look at discretionary trusts in particular for this blog which are the most commonly used type of trust. This kind of trust gives trustees the power to decide how much beneficiaries get from a trust, and when they get it. 

There are three main roles to decide on when setting up a discretionary trust:

1) The settlor: this person makes the initial gift of money, assets or property to the trust and ‘settles’ the asset(s). 

2) The trustee: this person or group of people are responsible for the overall management of the trust and ensuring the trust administration is upheld. In the case of a discretionary trust, the trustees have the power to advance any income or capital to the beneficiaries as they see fit. 

3) The beneficiary(ies): the settlor will in the first instance determine who the beneficiaries will be, while the trustees have the power to change this as time goes on. The beneficiaries will be the recipients of either capital or income from the trust, depending on the actions of the trustees. 

Inheritance Tax savings
Putting assets into trust gets them out of your estate, meaning their value and any growth in the value of the assets will not be taxed on you when you die. As IHT is at a rate of 40% this means on an asset worth £100,000 you’d be mitigating £40,000 of IHT which would otherwise be paid to HMRC and not received by your loved ones.

Income tax savings 
Trusts can also hold income-generating assets, such as shares or property while also distributing the income to the beneficiaries. Tax is still paid on the assets but at trust rates, which allows trustees to provide an income stream where trust income allows. This could be in the form of the trust receiving rental income, dividends paid on shares held by the trust, or interest received on investments. 

Flexible benefits 
With a discretionary trust, it is as simple as it sounds - the trustees have complete discretion. Picture a scenario where your financial landscape suddenly changes – a flexible approach becomes very important.

Discretionary trusts provide trustees the authority to strategically decide when and how much beneficiaries receive, providing a safety net of adaptability. Every family is unique, with its own set of dynamics and challenges. Discretionary trusts are a customisable solution, offering a protective factor for beneficiaries who may face hurdles in managing their financial affairs.

One of the great benefits of a trust is the ability to tailor it to your personal situation. Your vision for the future may encompass a range of beneficiaries – from named individuals to broader classes like "grandchildren and their descendants." The beauty of discretionary trusts lies in this diversity, allowing for a bespoke selection that mirrors your values.

Securing your legacy
Embarking on the discretionary trust journey is not just about tax planning; it's a step towards securing a legacy that resonates with your values. 

Get in touch 
If you think you and your family might benefit from implementing a trust please book a call with Niamh, our trust specialist.