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Issue 45 - A Matter of Trust!

In the last two newsletters, I have taken a look at Wills and Powers of Attorney, and this has sparked a few questions about Will Trusts and Trusts in general, so I thought I would include a few thoughts for you on this subject.

It is often assumed that placing things into a Trust fund is all about saving tax and whilst tax can be a consideration, it is actually more about keeping control, as I will explain.

Trusts are arrangements that are widely used in the UK and other locations, but not all countries will recognise them. Notably, Spain, France and Italy do not recognise the Trust status as a separate legal entity and will simply look through the Trust at the Settlor and Beneficiaries and treat Trust assets as though they belong to the individuals.

The Settlor to the Trust is the person who creates it and typically, adds the assets to be held in Trust. The Beneficiaries are people, who could be individuals or other entities, such as charities, who are the intended recipients of value from the Trust. As to what is available and when, this will be determined by the way the Trust is constructed.

It could for example, be an absolute Trust which names a specific beneficiary or beneficiaries and could be for a fixed proportion to be paid on reaching a defined event such as reaching a certain age or perhaps on marriage.

There is an alternative, which is a discretionary or flexible Trust. This will typically identify a class or classes of beneficiary, for example, children and grandchildren and will often indicate what proportions are to be made available to each.

Keeping control can be a concern and, in particular, if children are the beneficiaries and there is a concern over keeping money in the family, even in the event of matrimonial breakdown, then a Trust can be constructed to protect the assets and perhaps provide enjoyment to the beneficiaries during their lifetime, without the assets actually passing to them.

We also see this where Solicitors recommend including a Will Trust in the Will itself. This could often be to deal with property and where a couple may have Wills that mirror each other, there could be a Will Trust to receive the deceased partner’s share of the property on first death, such that the survivor retains a right to live in the property for the remainder of their life, but the property itself is passed into the Trust for the benefit of the children. This ensures security of tenure for the survivor, but potentially protects a share of the property for the children and perhaps ringfences it from future care fees assessments etc.

Gifting into Trust can have some Inheritance Tax savings in the UK, which typically, would use allowances available during the lifetime, or using the “nil rate band” of up to £325,000 per individual. This would be known as a potentially exempt transfer and providing the donor lives for 7 years after the date of the gift, it will fall out of the eventual Inheritance Tax assessment.

These thoughts are really the “tip of the iceberg” when it comes to the subject, and often your Solicitor is the best person to advise on Trusts, but we have a reasonable working knowledge of how and when they can be useful in the financial planning sense, so do ask if you need any help in this area.

The Here & Now!

A couple of weeks ago, I found myself in London for the second time in the last month after a gap of nearly 18 months and it was quite a surprise to see how much busier it was than earlier in the month. I guess with the school holidays and staycationing, that should not have really been a surprise. Walking across Leicester Square seemed to be as busy as it was pre-Covid, and I noticed very few people were wearing masks outside and only about 50% on public transport. I cannot say that I felt totally at ease with the travel, but it won’t put me off either and in fact, I will back in London later this month.

Talking of London, the City was noticeably quieter, and I think many of the financial, banking and insurance companies have large numbers working from home still, although some of the pubs and bars that I walked past, (honestly, I kept walking) were showing signs of customers returning, but not in the same numbers as used to spill out onto the streets across the city at lunch time and early evening. Bad for the pub takings, but good for liver recovery!

There is not really a lot to talk about on the financial scene as trading has been low and markets are largely benign, apart from perhaps Japan and the Alternative Investment Market (AIM) in the UK, both of which have had a good performance over the last month. As holiday season comes to a close, we would expect to see volumes of trading increasing once more and then we may well start to see a few lumps and bumps, but no major trends at the moment.

As always, it will be good to hear from you with any thoughts or comments and in the meantime, stay safe and we will keep in touch.

Best wishes.

Richard, Chris and Lesley

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