Are Trusts Safe?

Often, we hear our clients asking: Are Trusts safe? How can I ensure that the assets within the Trust remain under my control? When you settle some of your valuable assets into a Trust, you are actually handing over the legal title, or ownership, to the trustees. These days trusts are set up and administered so that you can still retain control over your assets even though you have no legal title to them. 

The role of a Trustee

Some people still think the old fashioned way, assuming they lose all association and control of their assets when they pass ownership to trustees, but thankfully this is not the case these days.

Long gone are times when you left everything in the hands of someone else, whom you did not know, and hoped for the best. However, trustees, such as ILS World, today have to see fair play all around and will make sensible decisions when they have to. 

Access to assets depends on the type of trust you set up and how you perceive the possibility that you may need to make significant structural changes in the future. Trustees are certainly approachable in cases of hardship or unusual circumstances where assets are required. When you set up a Trust, you sign a legal document called a “Trust Deed” that sets out the conditions, terms and rules for creating and managing your trust. It also states that the Trustee must always work towards the beneficiaries’ benefits. You may also be a named beneficiary.  

If, say, you were seriously ill and needed assets to pay for medical expenses, there would be ways to access these from a Trust. If you become terminally ill or of unsound mind, then trustees would make decisions about your assets practically and sensibly. This is really a blessing as they would be acting on your behalf and trying to ensure that the beneficiaries you have nominated are correctly and adequately cared for.

Pension Trusts

Are you aware that most pensions are owned and administered by trustees on behalf of an employer corporation to benefit the members? Because the assets are written into Trust if the company goes into liquidation, the pension scheme is left intact as the assets are segregated and not part of the company. There is one practical use of Trusts which many expats are not aware of in their lives.

International Pension Trusts

A solution that is especially favourable for expatriates, the international retirement plans administered under a traditional Trust arrangement or the more modern Contract Basis offer a wide range of tax benefits and an efficient saving platform. These types of retirement schemes take advantage of the DTA’s or Double Taxation Agreements between the country they’re set in and your country of origin. 

Because tax regimes worldwide have changed and can have differing rules, the development of Trusts has formulated several different types to suit major purposes. Trusts can be structured in a very bespoke manner, but very often, the specific principles of a particular Trust type will be adequate. Remember that every Trust agreement is in itself written to your individual requirements insofar as your wishes are concerned.

Trusts in Estate Planning

Trusts are often used to create and implement a succession plan covering several generations whilst also planning for inheritance tax (IHT). If assets are not owned by you when you die, trustees can either pass assets to your heirs or manage them and enable your successors to benefit from the income created. In this way, the assets in use are not part of your estate and are thus excluded from liability to IHT. Remember also that you, as the Settlor, the Trustees and your nominated beneficiaries are the only parties who need to be aware of the existence of the Trust. In this way, you are able to keep your affairs private and exclude prying eyes from accessing confidential information about your assets.

Different types of Trusts come with varying levels of Trustees powers

It is also feasible that Trusts can be collapsed or wound down if your circumstances change. This will depend on the individual structure setup. Even when you are not a beneficiary, there are ways in which an unwinding can be achieved. These procedures can be a little more complex and so seeking professional advice from the beginning is very wise.

Common Trust types include:

Living Trust and Irrevocable Trust

A Living Trust is a structure in which the terms can be changed at any time. An Irrevocable Trust is a Trust that cannot be modified after it is created without the beneficiaries’ consent.

Will Trust

It is structured to commence when you pass away. These are designed for some action to your estate assets for protection in the future and usually after certain events.

Probate Trusts

They are designed to assist in streamlining the probate process after you die. These are usually used for large estates or multi-jurisdictional asset ownership. Many ex-pats will fall into this category. However, there is usually no IHT advantage.

Settlor included Trusts

These are where you will be a beneficiary, and therefore, there would be no advantage to IHT through the use of the Trust.

Settlor excluded Trusts

Here you are not a beneficiary, and thus, this is a prime IHT planning structure. However, you have no easy access to the assets once settled into Trust. A professional adviser will know how to structure this well.

Discounted gift Trusts

Here you would be an excluded beneficiary as the Settlor, but you would also be entitled to an agreed structured income from the assets. This is good for accessing benefits, IHT planning and asset protection too.

Discretionary Trust

This type of Trust is set up for the benefit of one or more beneficiaries, but the trustee is given full discretion as to when and what funds are given to the beneficiaries. The Trustee, together with the settlor, can manage the assets within the Trust. 

Are Trusts safe? Yes!

Trusts are an essential part of the long-term planning strategy for everyone. Trusts, while providing you with a range of benefits, such as tax benefits, are also safe and depending on how you structure them, you can still be in complete control of your assets whether you are alive or after you pass away. 

Trusts, however, can be a complicated matter. You are wise to seek counsel from a professional adviser to encompass advice on your entire personal situation. Please contact Soteria Trusts or visit our “Trusts” section on our website for more information. 

This article has been written by Andrew Wood.

Connect with him on LinkedIn: https://www.linkedin.com/in/andrewwoodbca