Trusts are a valuable way for individuals and families to manage and control their assets and can be set up for any number of reasons.

Some popular reasons for setting up a trust include:

• managing the affairs of a young person or someone who is incapacitated
• passing on assets according to your wishes
• mitigating tax liability on a personal estate

Importantly, as a trust is held separate from an individual’s (the settlor’s) own estate, trustees can immediately access trust assets without waiting for probate to be granted.

While not a substitute for detailed professional advice, the following is designed to give you an idea of the types of trusts available, and how depending on your circumstances certain types of trusts might meet your needs.

Are you UK-domiciled?

The first question to consider is whether you are UK domiciled. The rules on this are complicated, but one condition where HMRC would deem a person to be UK domiciled is where they have been living in the UK for 15 of the last 20 tax years. For those people who are currently resident in the UK, but have not yet achieved UK domicile status, setting up what is called an Excluded Property Trust could reduce their Inheritance Tax (IHT) bill.

If you yourself are not able to take advantage of an Excluded Property Trust because you are UK-domiciled, perhaps your spouse or civil partner qualifies as a Non-UK domicile, in which case they could benefit from this type of trust.

Access to capital

Irrespective of someone’s marital or tax status, an important consideration is the willingness to give up access to capital. When using a trust, there is generally a trade-off between the IHT efficiency of the trust and the access to capital for the person making the gift. The greater the IHT efficiency, the less access the donor will have to the money they have paid into the trust.

For example, if you are prepared to give up access to the capital in the trust, and with it any income that flows from that capital, then a Gift Trust, which is IHT efficient may suit your requirements.

However, individuals who wish to undertake IHT planning, but don’t wish to lose access to their investments could consider a Discounted Gift Trust. This type of trust can work well for people who want to draw a regular pre-determined payment throughout their lifetime.

Alternatively, an individual who wants to mitigate the effects of IHT, but who requires access to their original capital might find that a Loan Trust meets their needs. This allows the individual full access to their original capital at any point, however, any growth in capital will not be included in their estate for IHT purposes.

For someone who wants the flexibility to defer or change access to capital and income if circumstances change, a Flexible Reversionary Trust could meet their requirements.

However, where you are not prepared to give up access to income or growth, a trust may not be effective at all. Life assurance might be better suited to meeting your estate planning needs.

Interests of the beneficiaries

Trusts can undoubtedly be a valuable way for individuals to manage their assets in a way that suits their individual circumstances and needs and those of their family. Above all, the interests of the trust beneficiaries is a major consideration when deciding whether to set up a trust and which trust to choose.

For some individuals and their families, of course, a trust may not be the best option and another solution, such as gifting, or as mentioned above life assurance, may be more suitable.  For more information on trusts and possible alternatives, please speak to your Courtiers Adviser.