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How Do Trusts Work?

WHAT IS A TRUST?

A Trust is an arrangement whereby persons (the trustees) hold and administer property or money for the benefit of others (the beneficiaries). The Trustees become the legal “owners” of the Trust property.

At Heritage Will Writing, we offer specialist advice in the establishment of discretionary trusts in order to ensure what is left to them does not face unnecessary tax, can continue to be administered without the appointment by the courts of a receiver and will not undermine their existing state benefits.

WHY TRUSTS ARE AN IMPORTANT PART OF PLANNING

If a Trust is in place before someone dies, the process of distributing the estate assets to the right beneficiaries is already defined and can be dealt with in a matter of a couple of weeks. If a Trust is not in place when someone dies, the process can take up to a year to complete and costs are also incurred along the way. This diagram outlines the differences in process for someone who dies with and without a Trust in place.

How Trusts Work

WHAT IS A DISCRETIONARY TRUST?

A Discretionary Trust is one in which the beneficiaries do not have the legal right to demand payment of Trust income or capital (unlike beneficiaries of other types of trusts). Payment is wholly within the discretion of the Trustees, as are the amounts and frequency of the payments. The Trustees’ powers are defined by the creator of the Trust in the Trust Instrument. When Heritage Will Writing drafts your will, your will becomes the trust instrument.

WHY IS A DISCRETIONARY TRUST APPROPRIATE FOR A DISABLED PERSON?

Many social security benefits are means-tested. Many services and facilities offered by social services are also subject to means testing. The capital (or the legal right to capital) of a disabled beneficiary from a simple trust will be taken into account as if they held the money themselves, leading to a reduction in or a complete loss of the benefit or service. The capital in a discretionary trust will be disregarded.

WHAT ABOUT A DISABLED PERSONS TRUST?

There is the option of making an alternative type of trust provision for a disabled person through a will. As a consequence of the Finance Act 2006, substantial changes took place regarding trusts. The majority of trusts now all have the same tax regime but those which benefit a disabled person are an exception to the rule and may attract favourable tax treatment. Therefore, any trust which is established for a disabled beneficiary could take advantage of the inheritance tax, income tax and capital gains tax reliefs available if the trust meets certain prescribed conditions.

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Please Note

The information provided here is intended to address the types of questions that people are often concerned about.

To see an outline of what we do and how we deliver services for our clients, please visit the Our Services page. You will find information on the key aspects of creating your will including:

Personal Reviews, Will Writing, Estate Planning & Tax Management, Lasting Power of Attorney, Discretionary Trusts, Special Provisions & Assurance (disabled beneficiaries), Severance of Tenancy, Secure Document Storage.

If you have a specific question, want more detailed information or want your will professionally prepared, then please just get in touch.

02380 879243