Lifetime Trust Planning
What is a Lifetime Trust?
A Lifetime Trust is a legal arrangement where the settlor (the person creating the trust) transfers assets into a trust during their lifetime. The trust is managed by trustees for the benefit of chosen beneficiaries.
The trust is created and funded while the settlor is alive, in contrast to a Will Trust which is established through a Will and comes into effect after the settlor’s death.
Why do I need a Lifetime Trust?
Assets in a Lifetime Trust are not subject to probate, which can save time and money and maintain privacy.
Depending on the structure, a Lifetime Trust can offer tax benefits, such as reducing Inheritance Tax.
A Lifetime Trust can protect assets from creditors & legal claims, ensuring those you do not wish to benefit from your estate do not.
The settlor can specify how and when the assets are distributed to the beneficiaries, which can be useful for managing the financial needs of minor children or beneficiaries who may not be financially responsible.
Lifetime Trusts are used for various purposes including estate planning, tax planning, managing and protecting assets, providing for minor children, and supporting charitable activities.
What happens without a Lifetime Trust?
If you don't have a Lifetime Trust, several potential outcomes could occur depending on your situation.
Without a trust, your assets typically go through the probate process upon your death. Probate can be time-consuming, expensive, and public.
Without the strategic planning that a trust can provide, your estate might be subject to higher estate taxes. Trusts can be structured to minimise Inheritance Tax.
Without a trust, your assets may not be distributed according to your specific wishes. While a will can specify your preferences, a trust allows for more detailed and controlled distribution, such as conditions for heirs receiving their inheritance.
Trusts can offer greater privacy than Wills. The probate process is public, so the details of your estate can become public record. Trusts, on the other hand, are private documents.
Without a trust, provisions for the care of minor children may not be as well-defined. Trusts can include specific instructions and funds for the care and education of minors.
Trusts can be used to provide for a beneficiary with special needs without disqualifying them from State Benefits. Without a trust, an inheritance might jeopardise their eligibility for State Benefits.
FAQs
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A Lifetime Trust takes effect during the settlor’s lifetime and can manage and distribute assets while they are alive. A Will only takes effect after the settlor’s death and requires probate, which can be time-consuming and public.
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Settlor: The person who creates the trust and transfers assets into it.
Trustees: The people or entity responsible for managing the trust according to its terms.
Beneficiaries: The individuals or entities that benefit from the trust.
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Yes, you can be the trustee of your own Lifetime Trust, allowing you to maintain control over the assets. However, at least 2 trustees are required to manage the trust at any time. Trustees can be replaced and appointed at any time, should the need require.
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A wide range of assets can be placed in a Lifetime Trust, including cash, investments, property, business interests, and personal property.
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It depends on the type of trust:
• Revocable Trust: Can be altered or terminated by the settlor at any time.
• Irrevocable Trust: Generally cannot be modified or revoked once established, offering greater asset protection and tax benefits.
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Cost: Initial setup and ongoing administration fees.
Complexity: Requires careful planning and professional expertise.
Irrevocability (if applicable): Once an irrevocable trust is created, the trust cannot usually be modified.
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A lifetime trust in the UK can have several tax implications, affecting inheritance tax (IHT), income tax, and capital gains tax (CGT). Specialist advice should be sought to ascertain how you may be impacted.
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Lifetime Trusts need to be registered with HMRC via the Trustee Registration Service.
