Trusts are one area of financial planning shrouded in mystery, with many people believing they are only for the ‘very wealthy’.
The reality is that trusts can be very simple and can help resolve a number of common financial problems.
How can a trust help me?
Protecting your life insurance policy from Inheritance Tax – you may not realise that the pay out from a life insurance policy could be subject to Inheritance Tax, which means that up to 40% of it could go to the tax man rather than your family.
Putting your policy in trust will normally protect it from Inheritance Tax and mean your family won’t have to wait until the estate is settled to receive the money. Trusts are really simple to set up, with most life insurance companies providing the forms free of charge.
Protecting your spouse and making sure assets end up with your children – Many people want to ensure that on their death, their partner can continue to enjoy the income from an investment or continue to live in a property they leave behind. They also want to be certain that on their partner’s death the investment or property will pass to their own children or other relatives. This is often the case where there are children from a previous relationship. A trust in your will which gives your partner a ‘Life interest’ is one way to achieve this.
Giving assets away but keeping control – One of the simplest ways to reduce your IHT liability is to make gifts. Some people are reluctant to give outright gifts to their adult children as they feel it’s not the right time or they’re concerned that the money would be spent unwisely or lost in the event of a divorce or bankruptcy.
A ‘Discretionary’ trust can allow you to give away the asset, but keep control by appointing yourself as a trustee. You and your fellow trustees can then decide when income or lump sums are paid out from the trust and which beneficiaries will benefit.
Making gifts to children – Often people will want to give money to children who are not able to look after it themselves. A trust can be used to hold the money for the benefit of the child. The type of trust you choose will depend on when you would like the child to have access to the money. A ‘bare’ trust would allow the child to get their hands on it at 18 (16 in Scotland) which may not be right for everyone.
Getting the right advice
The tax advantages and disadvantages vary between trusts, so getting the right advice when you’re setting them up is vital. NFU Mutual Financial Advisers are able to offer a range of trusts options when advising on investments and life insurance.
YOU NEED TO KNOW
The content of this article is based on NFU Mutual’s understanding of trust law as at January 2018, which is subject to change in the future.
GET IN TOUCH
NFU Mutual Financial Advisers can explain NFU Mutual’s range of trust options. Speak to your local NFU Mutual Agent or phone 0800 056 0142 (select option 3) and we will put you in touch with your personal Financial Adviser.
NFU Mutual Financial Advisers advise on NFU Mutual products and selected products from specialist providers. We’ll explain the services and charges.