What are your views on gifting trusts?

Hello,

I hear this question a lot from clients and my answer will always begin with me asking: “What are you trying to achieve?”

Trusts have been a feature of UK law for nearly one thousand years. They were first used during the time of the Crusades, when knights leaving the country handed (‘settled’) legal ownership of their land to trusted individuals (‘trustees’) to manage on behalf of them and their loved ones (‘beneficiaries’).

They’ve been popular ever since as a means of safeguarding assets within families. They often serve two valuable purposes.

First and foremost they’re a means of protecting assets, enabling someone to gift (‘settle’) money or assets while retaining a degree of control over how that settled property is used. This means for example that the assets can be protected and not lost in the event of divorce or bankruptcy of a beneficiary.

Secondly, trusts carry particular tax benefits, most notably in terms of their Inheritance Tax (IHT) efficiencies. With careful planning, using a gift trust can enable wealth to be passed from generation to generation without a 40% IHT charge when the donor (the settlor) dies.

As with anything, there can be drawbacks of using trusts. While the tax and asset protection benefits can be significant, trusts involve a degree of ongoing administration and cost, for example compared with simply making an outright gift. Before setting anything up, it’s therefore sensible to consult an expert to confirm whether in your particular situation the benefits would outweigh those costs.

Trusts come in all shapes and sizes, and one thing’s certain – if properly implemented, they can be a hugely valuable financial planning tool that can stand the test of time.

Hope this helps!