Once you have a plan for retirement, setting up a Trust fund could be an excellent way to protect the wealth you leave behind.  

Your retirement plan should ensure the withdrawals you make from your investment strategy continue to rise whilst still being able to leave a substantial sum behind for those you love.  

Once your retirement plan is sorted you can move onto the next phase, wealth preservation and protection.  

A Trust has its own legal identity. It’s a bit like a mini business. 

There will be a settlor, the person or people who create the Trust, usually you and your partner. 

Trustees, the people who manage the Trust. A bit like the Directors of a company.  

Finally, the beneficiaries, who the Trust is ultimately for.  

A person could fulfil multiple roles e.g. be a Trustee and a beneficiary.  

The Trustees need to manage the Trust on behalf of the beneficiaries and will need to meet regularly and record minutes of their meetings. The Trust itself may need to be registered with HM Revenue and Customs and may have to complete a tax return each year.  

Trusts are usually set up to take over ownership of assets, this could include things like: 

  • Property. 
  • Cash. 
  • Investments. 

  

Why should you consider setting up a Trust fund? 


A Trust is usually set up to legitimately shield assets from one or all three of the following: 

  • Taxation. 
  • Local Authority. 
  • Beneficiary misuse. 


It can be a way of you still having control over the asset without actually owning it.  

In terms of taxation, anything you own on death may be subject to Inheritance Tax if above certain allowances. By placing assets in Trust, you could legitimately avoid Inheritance Tax.  

Many people think gifting money away during their lifetime if a good way to avoid Inheritance Tax. This could be true, providing you survive long enough after making the gift, but it doesn’t stop beneficiary misuse.  

You may decide to gift or leave money directly to someone but if they divorce, go bankrupt or are wealthy enough to have their own Inheritance Tax problem then the gift might eventually end up in the wrong hands.  

As we live longer, more of us are likely to go into care. The more wealthy you are, protecting your retirement, the more likely you will have to cover most of your care costs yourself. This could eventually include losing the family home.  

Placing some or all of the family home in Trust could avoid this. 

Simple Trusts are also very powerful for life insurance policies as they can ensure the money is paid out quickly to the beneficiaries without the need to wait for probate and avoiding additional Inheritance Tax. 

 

An example of setting up a Trust fund 


Let’s bring some of this to life with a couple of examples.   

Example 1

Stephen is married to Gail. They have two children and own assets totalling £2million.  

Their Wills currently leave everything to each other on the first death and then everything to their children on second death.  

Some of the potential problems with this approach: 

  • The survivor might re-marry after first death, change the Will and assets could then be left to a new spouse and new spouse’s children, dis-inheriting Stephen and Gail’s original children. 
  • Stephen and Gail’s children may inherit on second death but either or both of the children could divorce meaning half the inheritance is lost in a divorce battle potentially dis-inheriting Stephen and Gail’s grandchildren. 

Solution.

Stephen and Gail set up Trusts with their Wills, appointing themselves and Trustees along with their children. They are beneficiary of each other’s Trust along with the children so they all have full access to funds but if any decided to divorce future partners and re-marry, the assets would not be included in any future settlement. 

Example 2

Alan and Kate are in their 80s and own their own home worth £3million. 

Their Wills currently leave everything to each other.  

The potential problem with this approach is that if the survivor after first death requires care, the Local Authority may use their home to help fund this.  

Solution. 

Alan and Kate set up Trusts with their Wills. This could ensure half of the home goes into Trust on first death therefore protecting at least this half from the Local Authority.  

The Local Authority may even ignore the other half of the home as it would be difficult to realise its value as you can’t sell half a home! 

Ultimately Trusts are a great way to pass more of your hard-earned wealth to the right people. They may sound complicated and there is some administration and cost to get your head around but ultimately, they are simple in what they are for.  

If you have been serious about your retirement planning, then you should be serious about your estate planning too. The earlier you start, the more options you have. 


If you would like to understand your retirement number, the amount you need to save for a successful retirement, then please get in touch for a free no obligation 15-minute call. We would be happy to review your position, explain where you stand and what you need to do to get the outcome you desire. We have created hundreds of happy and protected retirements over the years. This could be you too.  

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.