People tend to think of Trusts as a general solution for avoiding tax. They are not — they are complicated, and almost certainly not appropriate for anyone without very substantial wealth.
Expert advice, and a thorough understanding of the client’s circumstances and family, are necessary. I will not advise on the creation of a trust unless instructed by a Solicitor, or in conjunction with a firm of expert Accountants.
An exception: Discretionary Trusts can be a useful tool where there are members of a family who are not to be trusted with money — whether through youth, incapacity, or general fecklessness.
The drafting of Trusts is complex, and there is no point trying to review it in full on a publicly available website — but a few general points can be made.
Tax is payable by Trusts, so they are not a tax-free vehicle, as some suppose.
There are firms which advertise “Living Trusts”. Although a high percentage of residents of California have made Living Trusts, it is dubious that these are effective in England.
If you set up a Trust Fund for a child, make sure they know about it.
HM Treasury estimates that around 750,000 young people still have unclaimed accounts, worth £2,200 on average, out of 6.3 million Child Trust Fund accounts opened for children born between 1 September 2002 and 2 January 2011. You can search for a Child Trust Fund on gov.uk.
Also called a Property Protection Trust or a Flexible Life Interest Trust, these are respectable, Will-based arrangements designed to safeguard a share of the family home for future generations, while allowing the surviving spouse to carry on living in it. They can be appropriate in cases of moderate wealth, where a full discretionary trust would be unnecessary complexity.
| Can suit | Couples with children from previous relationships, where there is concern about the survivor’s future financial decision-making, or a wish to balance the survivor’s security against the children’s eventual inheritance. |
| Not appropriate for | Couples with modest assets, where the costs outweigh the benefits; cases where the survivor needs full flexibility over capital; or as a device to deliberately deprive a beneficiary in order to avoid local authority care home costs — a challenge to that is likely, and indefensible. |