If you were –-like me—a child of the early 60’s and remember the school desk with the lift up top, ink wells and pencil sharpeners on the teacher’s desk, you also probably remember going to the cinema to see the original Jungle Book Film. In it there is a scene where the python Kaa sings “Trust in me”. But are trusts still relevant today?
The First Myth: Trust are outdated and no longer relevant.
A commonly held belief is that trusts were a Victorian legal invention. As any avid historian knows, they were invented much earlier and the concept of a “trust” dates back to the 12th Century. When knights left their manorial lands to fight for the Crusaders, they had to leave their lands in the management of someone they could rely upon (or trust) to collect their feudal dues and manage their estates. They would temporarily transfer the ownership of their land to another person.
As you can imagine, disputes about ownership then arose and over time, the concept of transferring ownership to a “trustee” was developed in English law. The person whose land it was became known as a “beneficiary” and thereby had a legal right to force the return of his land.
The concept of a Trust was established approximately 900 years ago and despite the somewhat negative press, can still play an active role in estate planning today.
I do not intend to set out in detail the different types of trust, for an excellent explanation please see my colleague, Rhea Rhugani’s article of 9 July (Trusts: The benefits and UK tax implications – Child & Child).
This article will consider using Trusts as a means of retaining control and protection and their relevance in modern day estate planning.
The second myth – My children, grandchildren and great grandchildren will benefit from all my hard work
Apart from the wealth associated with traditional landed estates, modern wealth often stems from either entrepreneurship or a property portfolio built up over a lifetime. We’re all familiar with the truth that by the time the inheritance comes to the third or fourth generations, it has been flittered away.
Long-term, informal planning to pass assets to future generations rarely happens. This is because the estate is usually left to the individuals personally and not to a Family Trust.
The solution
Any concept that has lasted over 900 years cannot be bad. By establishing a Family Trust during your lifetime and taking proper advice, you can be sure that the assets pass to future generations for years to come. It is possible to leave assets in your will to a Family Trust which can be very beneficial for future generations.
The reason why the assets are protected under a trust is that they are not owned by the individuals personally. If that person where to fall on hard times, the assets in the trust would be protected. In the right circumstances, it can be very advantageous for beneficiaries of a trust be lent monies from a trust.
Trusts give you control – you can set out when, and in what circumstances, a family member is to benefit.
There are certain types of trusts in which the assets are never owned by the beneficiaries. The result being that the beneficiary will not be taxed on those assets upon their death on the value of the assets in the trust.
A word of warning
Whilst in the right circumstances and for the right individuals setting up a trust can be very beneficial, it is not a panacea, trusts are not without their complications or tax free. Trusts are subject to special tax rules and are subject to special rule and Trusts need to be managed which will inevitably incur costs.
Wealth warning
To misquote a famous Government advertising campaign, “Not planning ahead can seriously damage your wealth.” For more information about the use of Trusts and Estate Planning, please contact a member of our Private Wealth Department; Rhea Rughani (TEP), Colin Glass or Vincenzo Mazzone.
The information contained in this article is general guidance only. The application and impact of laws can vary widely depending on the specific facts involved. The information in this article is provided with the understanding that the authors and presenters are not giving legal, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional legal, tax or other competent advisers. Before making any decision or taking any action, you should consult a Child & Child professional.