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    Tax & estate planning | Financial planning



    Using a trust involves someone else looking after your cash, investments or property with the goal of this benefiting another person at a later date. For example, you can use a trust to hold savings for your children. The person for whom the trust is set up – in this case, your child – is called the beneficiary, whilst the person who owns the assets in the trust and manages it, is referred to as the trustee. How the trust is managed is decided when it is set up.

    A trust can help to reduce the amount of inheritance tax you are required to pay; once in a trust, the cash, property or investments no longer technically belong to you and therefore won’t be included when your inheritance tax bill is calculated.

    However, tax could be payable in relation to trusts in specific circumstances, such as:

    • When transferring assets into a trust
    • When transferring assets out of a trust
    • 10-yearly inheritance tax charges – when the trust has existed for 10 years
    • In the event of someone passing away and the trust is involved in matters of their estate

    Types of trust

    There are various types of trust that can be used; the type you choose should be dependent on your plans for the trust and what you want it to achieve. Some common options include:

    • Bare trust: In a bare trust, there are specially named beneficiaries with a clear entitlement to the trust assets. These individuals can access the trust from the age of 18, before which it is up to the trustees to decide if and when the assets are paid out to the beneficiary.
    • Interest in possession trust: In these types of trust, the beneficiary is entitled to trust income as and when it is produced. However, they do not have a right to the cash, investments or property that serve to generate that income.
    • Discretionary trust: This type of trust allows trustees to make important decisions regarding the trust income, such as what gets paid out, how often payments are made and to which potential beneficiary.
    • Mixed trust: These trusts are essentially a mixture of elements from different types of trust. For example, a mixed trust may be part interest in possession trust and part discretionary trust.
    • Accumulation trust: Through this type of trust, a trustee is able to accumulate income within the trust and to then add it to the trust’s capital.
    • Trust for a vulnerable person: There is often less tax payable on profits and income on a trust in which a beneficiary is a vulnerable person, such as someone with a disability.

    Contact us today

    Please note this is only a brief overview of the different types of trust available and does not constitute financial advice. Speak to the experts at Equilibrium to find out more about how the use of trusts can help to minimise your inheritance tax bill. We have supported many clients from in and around Manchester and Cheshire, as well as across the North West. Complete the form below to get in touch with one of our friendly experts.

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