What are Lifetime Trusts?
Lifetime Trusts are trusts created during one’s lifetime. They are an effective way of holding, preserving and controlling assets, money and property, such as your main residence, during your lifetime.
A Lifetime Trust comes into effect on creation by the Settlor (i.e. the person creating the trust) and is an arrangement that allows the trustees to hold assets on behalf of your beneficiaries. Lifetime Trusts can specify exactly how and when the assets pass to the beneficiaries. The type of trust that is best for you will depend on your individual circumstances and what you want to achieve.
Most Trusts fall within two main categories depending on how the income or capital is dealt with. The first being Interest-in-Possession Trusts (where the income or use is given to the specific beneficiary) or Discretionary Trusts.
For example, they can:
- Avoid sideway disinheritance;
- Avoid children inheriting at the wrong time;
- Adapt to beneficiaries’ needs;
- Avoid the involvement of the Court of Protection;
- Avoid undue influence on a Settlor or their beneficiaries;
- Protect against relationship breakdown and divorce;
- Preserve wealth for the benefit of future generations;
- Protect wealth for young or vulnerable beneficiaries;
- Protect wealth and assets from unwanted claims;
- Provide generational tax planning strategies for chosen beneficiaries;
- Avoid the need for a Grant of Probate for trust assets;
Types of Lifetime Trusts and benefits they provide
Discretionary Trusts
can be used to reduce Inheritance Tax or can be used to protect assets for beneficiaries who don’t have the ability to manage their own funds, perhaps due to illness, disability or addiction.
Family Trusts and Asset Protection Trusts
can be used to keep assets away from business creditors or a divorcing spouse and used to avoid sideway disinheritance.
Disabled Beneficiary Trusts
can be used for disabled people who are able to get special tax treatment from HMRC. They are more usually referred to as ‘vulnerable beneficiary trusts’.
Personal Injury Trusts
can be used and created from payments as a result of an accident, injury or malpractice and used to ensure that compensation is not taken into account when deciding whether you are entitled to state benefits.
Probate Benefits
Assets which are transferred into a lifetime trust usually avoid probate, meaning that your beneficiaries can gain access to these assets more quickly than they might have otherwise done through a Will, which is beneficial as it allows your beneficiaries to gain quicker access to their inheritance.
Tax Status
Lifetime Trusts have their own tax status. When a trust is established it is usually registered with the HMRC and it may be required to pay income tax, inheritance tax and capital gains tax. Therefore, we always advise that professional trustees are appointed as they are independent to the family and they can assist with any tax implications as they arise.
Tax Management
A trust is managed by its trustees and a professional trustee can be appointed or guide family members to get the best results from your Trusts. The Trustees role is to look after the assets and property deciding what will happen to it on behalf of named beneficiaries. There must be a minimum of two trustees and usually there is a maximum of four trustees.
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