Family Trusts: the basics
We often recommend a Family Trust as part of the estate planning process which has has many benefits for all types of situations.
What is a Family Trust ?
A Family Trust (legally known as a discretionary Trust) is a Trust which is set up by the Trust creator (a Settlor) either during their lifetime or by their will. The Family Trust will require two or more Trustees whom the Settlor trusts to carry out his or her wishes (although the Settlor can initially be one of the Trustees if the Trust is set up in the Settlor’s lifetime.)
The Settlor will leave with the Trustees a letter of wishes clearly setting out the way in which the Settlor envisages the Trust to be operated by the Trustees over the long term.
The Trust can name as many beneficiaries as the Settlor requires but will usually name certain classes of people i.e.. children and grandchildren maybe together with a favourite Charity(s). The essential point, however, is that all the beneficiaries are potential beneficiaries not absolute beneficiaries with an absolute right to the Trust assets.
The benefits of the Family Trust
Essentially, the Family Trust provides a protective layer around the Trust assets which can provide a number of benefits in securing the Trust assets over the long term by, in particular, the judicious use of loans, whilst still benefitting the named beneficiaries, as required.
The key benefits of the Family Trust are that it can, subject to existing legislation, provide the following benefits:
• Protect the Trust assets from inter-generational inheritance tax (IHT) • Protect the Trust assets from the effects of divorce or bankruptcy or other third party claims against a named beneficiary. • Provide benefits to disabled beneficiaries without affecting their state benefits. • Perhaps, most importantly, it allows the Settlor to control the future direction of their assets over the long term.