The Benefits of a Trust for Me: A Case Study
Trusts perform a number of important functions, and are the best option in a variety of circumstances. From reducing an Inheritance Tax liability to ensuring that your estate is dealt with in a suitable manner, trusts are a useful legal instrument for solving a number of important problems.
The use of trusts for Inheritance Tax (IHT) purposes has become less common in recent times, as a result of the government’s decision to allow spouses and civil partners to ‘double up’ on their nil-rate band allowances. This significant change to IHT rules has resulted in a significant reduction in the use of discretionary trusts.
Probate AvoidanceBut trusts are still useful in a wide variety of circumstances, and this is illustrated by the huge range of trust types on offer. This case study concerns a man and his family who have set up a living trust (also known as an inter vivos trust) with the intention of avoiding the probate process. While the beneficiaries and dependents of those with simple estates and affairs will probably not find the probate process too problematic, it can become drawn out and complex if the deceased individual’s estate was even slightly out of the ordinary.
Roger Spencer's* financial and business interests were complicated:
“My business affairs and my family arrangements are both complex. I have been married twice, and I was concerned that my kids or my wife would be left with a difficult and expensive task when I die” says Roger
Roger set up a living trust to help smooth over the probate process. “Basically I gave up the legal ownership of most of my assets,” he said. “The major one was my business, which is now legally controlled by professional trustees.”
Roger has given up the legal title to the assets, they will no longer be treated as part of his estate upon his death. This means that they will not be subject to the same probate process. In setting up the trust he named an ultimate beneficiary, his second wife, to whom all of the assets placed in trust will pass when he dies.
“I still have some control over the assets that I placed in trust, so I can still take an income from them,” he says. It should be remembered, though, that there are tax implications if you set up a trust from which you continue to benefit. This is explained in articles elsewhere on this site. Regardless of this, though, the assets placed in trust will no longer be subject to probate, and will be passed directly to his chosen beneficiary with the minimum of effort.
It is worth remembering that not all assets are subject to the probate process. The establishment of an inter vivos trust is not necessary for everyone, but is often recommended for those with complex estates or those without an obvious natural dependent – for example a spouse. Inter vivos trusts are complex legal instruments, and should only be set up after having taken advice from an independent professional.
*Names have been changed.