Trusts
Trusts are widely regarded as one of the hallmarks of the legal systems of the common law family. Their origin can be traced back to the 11th and 12th Century in England, when trusts were used by knights to transfer their land (without any consideration) to a trusted third party when leaving to fight in the Crusades so that the feudal services could continue to be performed and received.
Trusts are still used today, but have evolved to somewhat, and as there are many different trusts to choose from, it is important to get it right. Smart Independent Financial Advice Ltd will consider how much control and flexibility you require in order to achieve your primary objective of setting the trust up in the first place.
We will guide you through the whole process, and as part of our ongoing advisory service will be with you for every step of your journey.
Some reasons why you may wish to set up a trust
Protect Disabled or vulnerable individuals
There are several reasons you may choose a trust if there are vulnerable or disabled beneficiaries. For example:
You may feel your loved one is unable to manage their own financial affairs
To protect vulnerable beneficiaries from the risk of financial abuse from third parties
To protect entitlement to means-tested state benefits
To benefit from a tax-favoured status compared to other trusts
If receiving tax-favoured status is not a priority, a normal discretionary trust could be just as effective in meeting the trust objectives whilst providing greater flexibility.
Vulnerable persons trust and disabled persons trust can be set up in your lifetime or could be written within your will.
We will discuss the most appropriate option for you, whilst always considering your future wishes for your loved ones.
Impact on means tested benefits
Some vulnerable or disabled beneficiaries may be in receipt of means tested state benefits or local authority care packages. The trustees should consider the impact on these benefits when making payments to the beneficiary. A payment from the trust could mean the beneficiary’s capital or income exceeds means testing thresholds and could lead to the loss or reduction of means tested benefits.
The trustees may consider purchasing items for the disabled beneficiary directly from the trust so they won’t impact on means tested benefits
Inheritance tax planning
This is probably one of the main reasons for settling money into trust. Please see our separate Inheritance tax planning page for further information.
Personal injury trusts
A Personal Injury Trust is a trust created by an individual who has been awarded a compensation payment as a result of a personal injury. The injured party must be a beneficiary of the trust.
However, it's the source of the trust funds, not the type of trust, which makes it a personal injury trust.
A personal injury trust may be set up as an absolute, interest in possession or discretionary trust. They may even qualify as a disabled trust provided it satisfies the conditions on who may benefit.
Reasons for setting up a personal injury trust
A key reason for setting up a personal injury trust is to prevent the award causing a loss of means tested benefits. Personal injury trusts are disregarded in the means test for most means-tested state benefits, ancillary benefits such as free prescriptions and local authority support.
It's important that only personal injury payments are in the trust and money from other sources should not be added to trust.
Other reasons for establishing a personal injury trust might include inexperience of dealing with large sums of money, protection from unwelcome influence or the comfort of having experienced trustees to assist. A trust is also required if the claimant is a minor or mentally incapable unless a deputy has been appointed to look after their affairs.
What is the Letter of Wishes Form?
A Letter of Wishes is your opportunity to give guidance to those managing your estate on how you would like the assets of the Trust to be dealt with. Unlike a will, a Letter of Wishes is not legally binding, and the executors are not legally obliged to follow any requests made in the letter. Therefore, if you wish to ensure that certain personal possessions go to certain beneficiaries, perhaps because these items have sentimental value, this should be dealt with in your will.
While a letter of wishes is no substitute for a will, it can provide practical and emotional support to executors, family members and trustees created in the will. While some laws regarding wills and inheritance differ throughout the UK, a letter of wishes can accompany a will whether you live in England, Scotland, Wales, or Northern Ireland.
Will Trusts and Property Protection Will Trust
Will trusts are simply trusts set up on death as directed through your Will. Will trusts allow you to protect your assets so they can be passed on in fact to the people you loved the most. Will trusts are particularly useful in the modern world we live especially when you want to protect your step children, foster children or any other person you class as your child. They can also be used to protect co-habiting couples who are not married or in a civil partnership.
Here are just some of the ways a trust written within your Will can help secure your future wishes;
If you are a couple, and one of you remarries after the other has passed away, it can help in shielding your assets, as well as your share of the property, from being inherited by anyone you would rather not benefit from your estate.
If your children inherited outright, and they then divorce, the assets your child has inherited could be assessed as part of a divorce settlement. By directing your assets into Trust upon your death would unlikely form part of your children’s estate if ever assessed by a divorce solicitor.
Using trusts can also help protect your children’s inheritance if they found themselves in financial difficulties and creditors made a claim on their estate.
If you have a blended family that consists of step-children, foster children, in fact anyone you love, you can provide fairly for whoever you mention as the trust beneficiaries.
If you have a child who is disabled, you can make sure they have all the support they need in managing their inheritance, and you can ensure that any means-tested benefits they may receive is not affected. Likewise, if you have a child who is vulnerable or has any addiction issues, a trust can also be of benefit.
If you are a couple, and the surviving spouse enters long term care, a Will trust can help shield a share of the value of your property from being assessed by the local authority for care costs. However, please note, this should not be the primary purpose of directing assets into trust.