Much has been said and written recently about the use (or misuse) of trusts, mostly in the context of tax avoidance and money laundering, and the related introduction of additional compliance regimes aimed at filtering out the very small minority of trusts that are used for criminal purposes. The Trust Register, discussed by Jenny Cutts in her article, is one such compliance example. However, despite these new hurdles, the benefits of trusts hold good: they remain an invaluable mechanism for holding assets and passing these to younger generations of the family.
Assets held in trust are much better protected in the event of the divorce or
bankruptcy of a beneficiary than those held outright, as legal title to the assets is held by the trustees. They are also a vital means of protecting family wealth (and not necessarily enormous wealth) from ill-informed and immature attitudes to spending.
Modern, flexibly drawn trust deeds contain powers for the trustees to decide
whether and when to allow beneficiaries to receive capital, having regard to the beneficiary’s situation, family and business relationships, etc. If it is thought best not to do so, the assets can stay in trust and the income be paid to the beneficiary. New grandchildren can become part of the class of beneficiaries as they are born, and the trust can be used to meet the costs of education, first homes and business ventures. Outright ownership does not permit the same level of control, management and flexibility.
In most circumstances, retaining assets in trust has the disadvantage of incurring a ten-yearly charge to inheritance tax, currently at a maximum rate of 6% of the value of the trust assets at the time. However, this is often a price worth paying for protecting the assets from mismanagement by the younger generation or from those who might try to “attack” the funds. When the fund has been accumulated from the hard work of previous generations, it would be extremely sad to see the product of such endeavours end up in the wrong hands or the hands of third parties.
Trusts have stood the test of time and have been used to protect and manage
family wealth for centuries. They should continue