InvestmentsJul 14 2020

The benefits of setting up a trust

  • Explain some of the importance of trusts
  • Identify the role of trustees
  • Describe why setting up a trust is important right now
  • Explain some of the importance of trusts
  • Identify the role of trustees
  • Describe why setting up a trust is important right now
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CPD
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The benefits of setting up a trust

Divorce rates are currently down but are predicted to rise following lockdown. 

Claire Blakemore, a partner in the family law team at Withers, says: "It may be much harder to start the [divorce] process when you are stuck in the same house as your partner for an unknown amount of time to come."

Creditors cannot usually access a beneficiary's trust assets and trusts could prevent a divorcing spouse from obtaining all or a portion of a beneficiary's interest or expectation in a trust.

Trusts may be viewed by some settlors and beneficiaries as an insurance policy against economic downturn, but they are subject to the same market forces as ordinary investments.

It is good practice for trustees to have an investment strategy/policy tailored to the needs of beneficiaries

However, the rigour of decision-making by those who are obliged to act in beneficiaries' best interests, together with (hopefully) well-chosen advisers should help to protect trusts against the worse fluctuations.

It is good practice (and in some cases mandatory) for trustees to have an investment strategy/policy tailored to the needs of beneficiaries, which should be regularly reviewed to ensure it remains relevant for the beneficiaries and the economic climate.

In the face of family changes and market fluctuations, professional advice is key for the trustees or the investment advisor appointed in the trust deed (in the case of a reserved powers trust) as to how the beneficiaries' needs are going to be addressed at a time of limited income returns and likely capital losses.

Trustees face pressure as regards portfolio performance and valuations of all their assets. 

Trustees should consider (with the benefit of advice) whether to implement steps to mitigate losses (whether it be crystallising a loss to preserve the remaining value of an asset badly affected by the downturn or retaining it in the hope of recovery) and be vigilant in asset management until global markets settle.

More generally, trustees may wish now to review the investment strategy/policy and consider whether it is still relevant following the worst of the health, but perhaps not economic, crisis or whether it needs to be amended, concentrated stock diversified and consideration given to how any distributions can be funded and, if in doubt, obtain appropriate advice.

Tax

Whilst the appearance of trusts predated the statutory tax system, tax savings are an important part of trust planning.

Governments around the globe are acting to soften the economic impact of Covid-19.

In the UK, the Chancellor's £350bn package to support UK businesses during the coronavirus was welcomed by many.  However, such measures are inevitably followed by a day of fiscal reckoning.

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