Opinion  

Trusts have a valuable purpose

John Bunker

John Bunker

The decline in the use of trusts is a worrying trend.

It is time to write in defence of trusts.

The great value family trusts serve, and their huge potential to meet the varying needs of modern families, demands that they be used well.

Most family trusts in the UK are not set up to avoid tax, or to hide true ownership, as some might think after reading the recent HMRC review of the taxation of trusts.

There is a concern about some trusts which are set up to obscure true ownership but this is irrelevant to most family trusts which are created for a variety of specific needs, to benefit different people at different times.

There is not normally one true owner but trustees trying to help various beneficiaries as directed in a letter of wishes.

It is a waste if people are put off creating trusts because of their bad perception or image.

Let’s remind people about the value of trusts.

They enable one person to use an asset now, but then others later, as in the classic trust for a second (or subsequent) spouse (or unmarried partner).

The widow(er) can have the security and comfort of living in a home, without the risk that he or she either wastes the asset, for example by selling and misusing the sale proceeds (as they cannot just sell); or leaves it to the wrong person as they might otherwise do consciously (if with different views about who ‘deserves’ to benefit) or inadvertently (for example. a will being revoked by remarrying).

Helping different people at different times is also an aim of many moderately wealthy people who cannot afford to release a large sum all to one person but to see some funds help one person now and another later. It might be parents acting as the Bank of Mum and Dad (BOMAD), helping one adult child buy a property now, then another later, by loans from a trust rather than outright gifts.

BOMAD raises the problem of parents wanting to help a child buying a home but being concerned about their relationship with a spouse or cohabitee.

Research in 2017 showed that one in three parents are concerned about making outright gifts and finding that the money ‘goes down the drain’ on a divorce.

A trust can be a structure to enable the child to have a better, more secure home, without that risk of wasting away the money.

Then there is asset protection.

This applies to an increasing number of sad cases where people are unable to manage money, due to addictions, mental health difficulties or simply being useless with money.