Much of our trust law is 100 years old, and some might say ripe for reform.

What are trusts? 

Trusts are vehicles for holding assets. Ownership is with the trustees but they are holding the assets not for themselves but for the beneficiaries. They can be very flexible by naming a wide range of beneficiaries for the trustees to choose from to account for changing circumstances. 

Why is putting assets into a trust a good idea? 

• It can protect assets for young children or vulnerable family members. Trustees can manage funds and pay expenses for the beneficiaries but the beneficiaries are protected and the funds are protected;

• It can protect assets from a later claim by a partner on separation or divorce, for example if you are making gifts to your children (if a pre/post nuptial or cohabitation agreement is not possible);

• It can remove assets from your own estate for inheritance tax but not put them directly into someone's else's ownership;

• It can protect life policies from inheritance tax at 40%;

• It can delay and control decision making on the distribution of a lump sum death benefit from a pension, by nominating a trust to receive that fund;

• It can hold assets if you are unsure who the heir is, for example if you have a business;

• It can protect assets from legal rights. Legal rights are the right of your spouse and children to claim part of the value of your estate regardless of the terms of your will. A trust can be used to hold assets for your benefit and protect the assets from legal rights;

• Capital gains tax hold over relief can be claimed on a gift of assets to a trust.

Proposed trust reform

Much of our trust law is 100 years old this year. A bill was published in 2018 to reform trusts but this has not been taken forward. The bill would not restrict trusts in any way but would make them even more attractive for holding and passing on assets. The reforms proposed would provide easier solutions to some problems which can crop up in trusts, such as the missing trustee. Reform might be welcome to tidy and update matters, for example it seeks to be clearer about operation and decision making, to remove some archaic rules standing in the way of flexibility such as the rule against holding on to income after 21 years, and to amalgamate the investment powers all in one place instead of across two or three pieces of law. A well thought out, well drafted flexible trust with the right team of trustees in place is unlikely in practice to face an unresolvable problem.

Trusts have legal, tax and compliance consequences which must be understood but it may be seen as an acceptable price to pay for the asset protection, control and flexibility a trust provides.

Contributor

Leigh Gould

Partner