Trusts & Executorships
Trusts can be very useful in mitigating Inheritance Tax, and are important tools to make use of in tax planning in general.
Trusts can be used to hold private company shares, to gift money to charity, to restrict future beneficiary access to property, or to provide for family expenses such as children’s education or maintenance.
There are four main types of trust, and the team at Warr & Co accountants can advise on the trust best suited to your particular situation and objectives. Each type of trust is subject to different tax rules and can be adapted to a variety of purposes. That’s why seeking professional trust and executorship help is advised – we look at the bigger picture, including but not limited to your current tax situation, tax planning and estate planning.
Not only can we advise on the best trust for your objectives, we will set up your trust for you and can provide a wide range of related individual accounting services. We can even act as trustees or executors if you wish.
Working With A Trusts & Executorships Accountant
at Warr & Co Chartered Accountants
Types of Trusts & Executorships
There are four main types of trusts. Below we provide a little detail on each.
A Life Interest trust is used to specify who has rights to your property after you die. Typically a Life Interest ‘tenant’ will have the right to live in the property until a specified time, eg: until they die, re-marry, or after a set number of years.
Once this has elapsed, the Life Interest trust ensures the property becomes the asset of the intended beneficiaries.
This trust is often used by families to ensure family homes are properly passed on.
There are many variables surrounding a Life Interest trust, so it’s best to sit down with an expert, discuss the possible scenarios and decide what should happen in each case.
Part of your will that handles how any property you own should be handled in the event of your death.
A wide variety of scenarios are possible, especially in the case of a large and varied family.
Discretionary trusts are popular due to their flexibility, but can be subject to a variety of taxes depending on how they are set up and run.
In a Discretionary trust, money within the trust is managed by a named trustee or several trustees. Perhaps you wish your trust money to be divided depending on future states that you cannot know at this time, or you wish to leave money to a beneficiary but have someone else who is in control of when and how much is used.
A Discretionary trust can be used to gift money during your lifetime and/or after your death.
A trust to hold money to be gifted to beneficiaries which is controlled by a trustee.
To help distribute gifts of money in a tax-efficient way and to allow a trustee to dictate how your trust should act on your behalf after your death.
An Accumulation & Maintenance trust allows assets to be passed onto children or grandchildren at a specified age, but no later than 25. It is similar to the Discretionary trust, and in some cases a discretionary trust is more favourable for similar purposes. Like in the Discretionary trust, the trust has trustees who must oversee matters.
The Accumulation & Maintenance trust allows for a set ‘income’ to be paid to beneficiaries, followed by the full remainder of the assets at age 25 and is generally set up to help maintain children or grandchildren in case of your death. In addition, the trustees are charged with maintaining the trust, and may wish to make investments with the money.
These trusts can also be ‘mixed’ to allow for children of different ages. So as you can imagine, it can become quite complex, which is why having an accountant oversee the trust is such a good idea.
A trust that provides an income to children or grandchildren up to a certain age, at which time they gain access to the assets. Overseen by trustee(s) who may invest to ensure the trust is as optimal as possible for the beneficiaries.
In the event of your death you may wish to leave money to any children or grandchildren to ensure they have support from your estate up until an age you deem them responsible enough to take over your assets.
Bare trusts are perhaps the most flexible type of trusts. In the Bare trust the beneficiaries are free to access the capital and assests of a trust as they wish.
A trustee will be appointed to oversee the trust and make sound investment and savings decisions, providing guidance to the beneficiary, but ultimately the beneficiary has access to all of the assets as they wish.
However, income from a Bare trust is taxable, and the tax picture will very much depend on each beneficiary’s tax situation. And Inheritance Tax must be paid in full if the settler dies within 7 years of setting up the trust, so this isn’t always the preferred trust option.
A trust that gives beneficiaries maximum flexibility, but may also be taxed relatively heavily for a trust.
If you wish to set this up well in advance of your death and trust the beneficiaries to manage the assets then this is a simple option.