Inheritance Tax  

Trusts will keep the assets in the family

This article is part of
Guide to Family Financial Planning

Ms Kleis also believes that discretionary trusts are a good choice for preserving family wealth: “Discretionary trusts are extremely flexible – they can be used for whatever the settlor wants to achieve. They are useful in all situations where a trust is required.

“A fully discretionary trust document is the best option, as it provides not just flexibility, but allows you to be specific about what can be done with the assets and when. It would always be our first choice, but any decisions should be guided by legal and tax advice.”

Protecting assets

There are other ways in which trusts can be useful, for instance if parents or grandparents may not have a substantial sum to gift, as Paul Allan, financial adviser at Wren Sterling in Glasgow points out:  “A trust could be useful for preserving family wealth in instances where you might not have much cash available, but want to put money away. For example, you could put a life assurance policy such as a whole of life plan into trust, although this would obviously only pay out on death, rather than at a specific time.”

And for those parents who do have a pot of money available, Mr. Allan adds: “You could also put a lump sum into trust for your children’s benefit at a future stage, using an investment bond, which is the most commonly used vehicle for this purpose, as it is classed as a non-income producing asset.”

This has other benefits, as Mr. Allan explains: “This can be very useful for parents who don’t want to risk their own financial security. If they know their children might need help in the future, they can just set aside a lump sum in trust and invest for growth. I believe this is a very good use of a trust.”

This can also be advantageous from a tax perspective, as Mr. Allan indicates: “If the child is not a taxpayer at the point when it pays out, it could be a very tax-effective decision.”

However, tax can be a sensitive subject for trusts, which have had some unfair criticism, according to Ms. Kleis: “There is a populist view that trusts are set up to protect people from tax, but what they are really for is protecting assets – for example, from ‘spendthrift’ beneficiaries, and to avoid fragmentation of family businesses and assets.”

Fiona Nicolson is a freelance journalist