Why you need to know about trusts for financial planning

Jul 2, 2024

Trusts can play a crucial role in your financial planning. They offer a range of benefits for investing, helping beneficiaries, and leaving wealth to future generations. While trusts might seem complex, understanding their advantages can help you make more informed decisions about your financial future. The experts at Bulley Davey Wealth Management explain more in this blog.

What is a trust?

A trust is a legal arrangement in which one party, the trustee, holds and manages assets on behalf of another party, the beneficiary. The person who creates the trust is called the settlor. Trusts are versatile tools that can be tailored to meet specific financial goals and circumstances.

Investing with trusts

One of the primary benefits of trusts is their ability to facilitate effective investment strategies. Trusts can hold various types of assets, including property, shares, and cash. By placing assets in a trust, you can ensure that they are managed by professionals, potentially increasing their value over time.

For example, if you set up a discretionary trust, the trustees have the flexibility to make investment decisions that align with the beneficiaries’ best interests. This can be particularly beneficial if you want to provide for your children or grandchildren but are unsure of their future needs or financial acumen.

Helping beneficiaries

Trusts also effectively provide for beneficiaries in a controlled and protected manner. If you have a family member who cannot manage their finances due to age or other reasons, a trust can ensure that their needs are met without giving them full access to the assets.

For instance, a trust can provide regular payments to cover educational expenses, living costs, or medical bills. This can offer peace of mind, knowing that the beneficiary is supported financially, even if you are no longer around to manage their needs personally.

Leaving wealth

When it comes to estate planning, trusts are invaluable tools for passing on wealth to future generations. They allow you to control how and when your assets are distributed after your death, which can be particularly useful in mitigating inheritance tax and ensuring that your wealth is used according to your wishes.

A common type of trust used for this purpose is the will trust, which comes into effect upon your death. This type of trust can help reduce the tax burden on your estate and provide for your loved ones in a structured manner.

Tax efficiency

Trusts can offer significant tax advantages. In the UK, certain types of trusts can help reduce your inheritance tax liability. For example, assets placed in a trust may not be considered part of your estate for inheritance tax purposes, provided certain conditions are met.

Additionally, trusts can provide income tax and capital gains tax benefits, depending on the structure and terms of the trust. By carefully planning and setting up a trust, you can potentially minimise the tax impact on your estate and beneficiaries.

Protection from creditors and legal challenges

Another benefit of trusts is their protection against creditors and legal disputes. Assets held in a trust are generally considered separate from your personal assets, which can provide a layer of protection if you face financial difficulties or legal challenges.

This protection can be particularly important for business owners or individuals in professions with a higher risk of litigation. Placing assets in a trust can help safeguard your wealth from potential claims.

Flexibility and control

Trusts provide a high degree of flexibility and control over your assets. You can specify detailed instructions for how the trust should be managed and how the assets should be distributed. This can include setting conditions for beneficiaries to receive distributions, such as reaching a certain age or achieving specific milestones.

This level of control can be particularly useful if you have specific goals for your wealth, such as funding your grandchildren’s education or ensuring that a family business remains within the family.

Peace of mind

Ultimately, trusts offer peace of mind. Knowing that your assets are managed and distributed according to your wishes can provide a sense of security for you and your loved ones. Trusts ensure that your financial plans are carried out even if you can no longer manage your affairs personally.

The bottom line

Trusts are powerful tools for financial planning, offering numerous benefits for investing, helping beneficiaries, and leaving wealth. By understanding how trusts work and their advantages, you can make more informed decisions about your financial future.

If you are considering incorporating trusts into your financial planning, seeking professional advice is essential. We can help you navigate the options and establish a trust to meet your needs and goals. Our focus is on providing personalised advice that prioritises your interests and those of your beneficiaries.

Contact Bulley Davey Wealth Management today to discuss how trusts can benefit your financial planning and help secure your family’s future.

Note: The Financial Conduct Authority does not regulate trusts.

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