There are no right answers to wrong questions."
Ursula K. Le Guin (1929-present)
Trusts. To some a bad word, to others a source of confusion. For many, trusts should form an integral part of an overall financial planning strategy. Available capital or assets are required to form a trust fund but also, understanding if and how a trust fund could help you (and of course which trust might be most appropriate) means asking yourself several key questions. Here are five:
- Are you likely to ever have a need to access that Capital?
- Do you have a need for an income from that Capital?
- Would you be prepared to give up access to any growth on that Capital?
- Have you used your gifting allowances?
- Are you (or your Spouse / Civil Partner) UK Domiciled?
Answers to these questions can help you identify, understand and solidify your needs, objectives and wishes, as well as your attitudes to different types of trust arrangements. Let’s look at each question in more detail below.
As a rule, the more access to your funds you give away the more beneficial the trust will be on your IHT position. However, this decision largely boils down to whether or not you can afford to, and are willing to give some of that access away. Gifting and the use of trusts are not the only ways to mitigate an IHT liability but if used correctly can have major benefits for your IHT position and, ultimately, the wealth you pass on to your family.
So if you are considering options to mitigate your IHT liability then make sure you ask yourself these five questions first. The answers will help to shape the discussion around the different types of trust available and which might be suitable for you.
Trust planning is a complicated area. There are plenty of other factors outside of this article which require careful thought when considering trusts. Trusts are something which should be incorporated within a broader picture and overall financial planning.
I will be releasing a further article next month, delving into the various types of trusts available.
If, in the meantime, you would like to find out more about trusts or explore your options further, please speak to your COURTIERS Adviser.
Phil Greenwood DipPFS
Head of Technical Support (Henley Office)
Tax treatment depends on individual circumstances and may be subject to change in the future.
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