Potential benefits of 'Lifetime Trusts'

There are many misconceptions about trusts – about who typically uses them and about their intended purpose. Many think trusts are primarily about saving tax and only for the seriously wealthy.

In fact, there is a long history of trusts being used in the sensible management and control of assets as wealth is passed down from one generation to another during the lifetime of those gifting wealth. In our experience, ‘lifetime trusts’ can be employed successfully by a wide range of individuals and families to help with overall wealth planning.

‘Lifetime trusts’ can potentially overcome some of the problems associated with direct co-ownership of assets by different family members. For example, if your adult children co-own a rental property with you and one of them is made bankrupt, the trustees in bankruptcy will want that share of the property, which may not be the case if the property was held in trust.

Although the tax planning benefits of trusts are all too often over-emphasised, it is true that correctly structured trusts provide scope to manage potential capital gains tax liabilities and inheritance tax liabilities through sensible, planned timing of gifts and asset disposals.

A cautionary note about trusts is that ‘reservation of benefit’ rules means you cannot ‘have your cake and eat it’. If you transfer assets to a trust, you must give up the right to the capital and income which must be retained by the trust or distributed to the beneficiaries. It also means you should be wary of advice that suggests you can transfer your family home to a trust, continue to live in it, and thereby avoid potential inheritance tax liabilities.

As always, get advice from a properly regulated legal professional with experience of trusts and how to apply these in different financial and family situations.