At Richardson tribe Trusts are one of our key planning tools used both for Tax planning and asset protection.
The History of the Trust
During the Crusades circa 1,000 years ago, landowners would leave estates for long periods of time, but would expect to return to their estates and retain control. By signing over control to others, there was no guarantee the third party would hand that control back to them upon their return.A practice arose whereby the landowner could convey title of assets to a third party, but, at the same time, would oblige the third party to hold the assets to the use of another.This device was originally known as the ‘Use’. This was a very important point in legal history; this represented the point at which legal rules were able to separate the burdens of property ownership from the benefits.The ‘Use’ was the prototype for the modern day ‘Trust’ There were many reasons for using the ‘Use’ in medieval planning:
• Confidentiality: The Franciscan Friars took oaths of poverty forbidding the ownership of real estate, but then needed somewhere to live; property could therefore be conveyed to a Trustee to hold for the use of the clergy.
• Estate Planning: The law of succession in the Middle Ages stated that a father must pass his land to his eldest son; the ‘Use’ allowed fathers to pass land to their younger sons or daughters.
• To Save Tax: In medieval times, taxes were collected in the form of ‘feudal incidents’; these were payable at certain times, including death. The Trust was therefore a crafty device used to avoid payments of these early forms of tax. The ‘Statute of Uses’ was introduced in 1535 by Henry VIII and became the first anti-avoidance statute in English Law.
In plain English, what is a Trust?
A Trust is a way of maintaining control of your assets, but not ownership of them, thereby protecting them and ensuring that they pass to the people you want them to pass to after your death.The people who are appointed as Trustees legally own the assets, but are not able to benefit from the ownership of those assets; the persons who benefit from the Trust are the beneficiaries. Under many Trusts, you will be the main beneficiary for the term of your life, with your family (or other persons nominated by you) benefitting thereafter. If you are not happy with how the Trust is being run, you can be entitled to remove the Trustee(s) and appoint new one(s).
A person who sets up a Trust is known as a ‘Settlor’. The people who administer the Trust are known as ‘Trustees’, of whom there must be at least two.The people who benefit from the Trust are known as ‘Beneficiaries’. A Trust can last for up to 125 years and can benefit future generations of your family, e.g. by loaning the deposit on a first home to a grandchild or great grandchild.
What would you put into the Trust? You would normally place your family home and/or your savings into a Trust. Other assets, such as land, money, buildings, shares or even antiques, can also be placed into Trust for the benefit of one or more beneficiaries.
Trusts – How They Work
Our Trusts are specifically designed to protect your assets, such as your home and savings, during your lifetime so that those assets pass fully intact to your intended beneficiaries after your death. There are many benefits associated with Trusts, including protecting your assets from third parties, avoiding probate fees (depending on the circumstances) and also avoiding sideways disinheritance.As we discuss in the Seminar, there are many different types of Trusts and they all fulfil specific jobs and roles. Our Trusts are bespoke and designed to do the job set down by you when they are created.Every Trust has three common roles:
The Settlor(s) – is/are the person(s) who creates the Trust, and they do so by settling assets into it; they will then set down who is to do what in relation to the Trust, what role the Trust is to fulfil and how it is to work.The Trustees – are the people who are responsible for running the Trust in accordance with the law and the Settlor’s wishes, and they have to ensure the Beneficiaries get what they are entitled to from the Trust.The Beneficiaries – are the people who are able to receive the income and/or capital from the Trust, in accordance with the rules set down by the Settlors and Trustees.A Trust can be set up during your lifetime to hold assets on your behalf. ‘A Trust’ is a relationship that is recognised and enforceable in the Courts, the details of which are contained in a ‘Trust Deed’. The Trust Deed details the role of the Trust and how the Trust is to operate, as well as stating who runs and benefits from the Trust.In Tax practices, it is often the case that a Trust enables someone to give an asset away in legal terms whilst retaining control of it. Many clients find this useful in making provision for children and grandchildren; they can make the gift through a Trust and gain the tax advantages, but they retain the control as a Trustee over the gift and therefore ensure it is used in the right way, and not given to the beneficiary until the time or circumstance is right. After death, the assets within the Trust are held on a discretionary basis for your chosen beneficiaries. The precise percentages and conditions under which individual beneficiaries will benefit can be set out in a Letter of Wishes, addressed to your Trustees. The assets do not pass under your Will and do not require a Grant of Probate in order to be distributed. In order for an asset to be protected by the Trust, it must be registered in the name of the Trust. This is a legal requirement. The Trust will normally be named after the person creating it (the Settlor).
So, if John Smith sets up a Trust, it would normally be called ‘The John Smith Trust’. The Trust is designed to give you, the Settlor, absolute security during your lifetime, while providing you with the flexibility you require.
There are numerous benefits in the way in which the Trust is structured, and people set them up for different reasons:
– You can have a guaranteed right of occupation and income during your lifetime
– You are free to move or downsize
– You are able to hold property and savings within the Trust
– You can remove assets from your taxable Estate and lower the Inheritance Tax burden
– You keep control of the assets you have legally given away.The overall effect of placing assets into Trust is to maximise the above benefits by separating the legal and beneficial title.