Understanding Trusts: How They Can Protect your Assets

Trusts can be a useful legal tool for managing your estate when you pass away, allowing you to keep an element of control over what happens to your assets and how they can be used. Whether you are planning your estate, safeguarding wealth for future generations, or ensuring assets are used for a specific purpose, trusts provide peace of mind and legal certainty and offer a flexible and effective way to manage and protect assets. As solicitors specialising in trusts, RDC have a wealth of knowledge and experience, enabling us to advise individuals and families on the benefits of trusts. In this article, we’ll break down what trusts are, how they work, and how they can help protect your assets.

What Type of Trust Do I Need?

Choosing the best type of trust for your situation may be complicated, especially when taking into account your needs, the needs of your family and beneficiaries, and your tax planning. It is therefore, best to get a professional opinion. The best type of trust for your individual situation will depend on what assets you are wishing to protect, and the situation that you are in or could possibly be in, in the future.

Types of Trusts

There are several types of trusts, each suited to different circumstances. Some of the most commonly used trusts are Bare Trusts, where beneficiaries have an immediate and absolute right to the assets held in the trust and the income it generates. Often used by parents or grandparents to pass assets to children, these trusts are helpful as the assets belong to the beneficiary outright once they turn 18.

Another type of trust is a Discretionary Trust, where the trustees have discretion over how the trust’s income and capital are distributed among the beneficiaries. This type of trust can be particularly useful when you want flexibility to adapt to changing family circumstances or to support beneficiaries who may not yet be ready to manage significant assets themselves.

Interest in Possession Trusts allow beneficiaries to receive income generated by the trust but not the underlying capital. These trusts are often used in estate planning, such as when leaving property to a spouse for their lifetime while ensuring it eventually passes to children.

Trusts for Vulnerable Persons are specifically designed to provide financial support to individuals who are unable to manage their own finances, such as a child with a disability. Finally, Charitable Trusts can be created for the purpose of supporting charitable causes, offering both a way to give back and potential tax advantages.

Key Considerations When Setting Up a Trust

While trusts offer significant benefits, it is essential to seek professional advice to ensure they are set up and managed correctly. Below are some factors to consider:

Choosing Trustees

Trustees play a critical role in managing the trust. Choose individuals or professionals you trust to act in the best interests of the beneficiaries.

Understanding Tax Implications

Different types of trusts have distinct tax treatments, including inheritance tax, income tax, and capital gains tax. It is advisable to consult a solicitor who can help to navigate these complexities.

Make Intentions Clear

Be clear about the purpose of the trust and the conditions under which assets can be distributed.

Ongoing Management

It’s also worth bearing in mind that trusts require ongoing administration, including record-keeping, tax filings, and periodic reviews to ensure they remain fit for purpose.

Protect your Assets with a Trust

Setting up a trust is a complex process that requires careful planning and legal expertise. Here at RDC, we can guide you through every stage, from selecting the appropriate type of trust to drafting the trust deed and advising on tax implications. If you are considering setting up a Trust or would like more information, call us on Bingley 01274 723858, Ilkley 01943 601173 or Bradford 01274 735511.