Trusts

The main difference between a Trust and a Will is the fact that your property won’t go through probate when you die. With a Will the transfer of property takes place at your death and will need to go through the court system, (probate) to determine the legalities of the will and the properties being dispersed. During probate much of the estate is taken by taxes and sometimes attorneys. When you create a Trust you transfer your properties to it while you are still alive and it continues on through your death.

When you create a Trust you transfer all your property, assets, bank accounts, securities, real estate to a person or persons you “Trust”. You no longer own these assets, the “Trust” does. You still have access to all these assets while you are alive. You instruct your Trust to pay out all income to you during your lifetime, and on your death whatever is left would be given to your beneficiaries. You can put instructions in the Trust as to who has access to it. Your property will avoid probate after you die. You will need to appoint a trustee to take care of the Trust and follow it’s directions. The neat part is, you can be your own trustee. You can be the person that is responsible for taking care of all of the assets while you are alive. You can still control your assets and decide what you want to do with them. After your death your Trust would be passed on to a successor trustee that was named in your original Trust.

Insurance policies 'in trust'

These days, writing insurance policies in trust is an essential part of financial planning.

On death, life insurance policies form part of your estate which means they are potentially liable to Inheritance Tax (currently 40% over £312,000 after clearing debts and using your allowances). If you are married your estate can pass to your spouse free of IHT and the government earlier this year announced a £624,000 married couples allowance. But if you want to be absoultely sure, write your policy in trust.

By writing a policy in trust it takes it outside of your estate and therefore not liable to IHT, so your beneficiaries receive 100% of the policy value. The other benefits include being able to nominate who the money goes to and in what proportions. You can also include your children as 'default beneficiaries' in case anything happens to your spouse. And if you die without having made a will, the trust ensures the policy pays out immediately without going through the lengthy probate system. If your old policies were not written in trust, don't worry because you can usually set these up at any time.

Trusts are also useful for Partnership insurance and Directors share protection where the policy proceeds need to pass to specific people or organisations.

Whomever is appointed as trustee must follow the rules of the Trust and can not go against your instructions. As said earlier, you can appoint yourself as trustee or another friend or family member. Or, you can appoint a corporate trustee. A corporate trustee is usually a lawyer, accountant, bank or trust company that is chartered to be a trustee. They will charge you fees to take care of your Trust. They will also be able to invest your assets in a more educated manner than unqualified trustees.

When a Trust is done right, it will protect your assets in many ways. It can protect your assets from probate after your death. Save on estate taxes. Keep all assets out of creditor’s clutches. Keep your property away from a divorcee.