Do you trust Trusts?

Trusts are a way for families to securely hold assets and pass them on from one generation to another. Put simply, a Trust is a straightforward concept: it is the legal transfer of assets (property, shares, cash, etc.) to a small number of people (trustees) or a trust company with instructions that they should hold the assets for the benefit of others (beneficiaries). This creates the separation of the legal ownership and the beneficial ownership of the assets.

Trusts can play a vital role in arranging families’ financial affairs. Their main attraction is that they allow the person setting up the Trust, the ability to exercise control over how the assets will be used going forward. This is particularly useful where those set to benefit, may not be ready to manage it for themselves.

Some common situations would be: to protect the inheritance of young children, or vulnerable relatives, or to provide for someone, whilst protecting the interests of any children. They are also often used in family business`s succession planning.

However, should Trusts always be trusted?

One reason why the public don't feel they can trust them is usually because they have limited or no access to information on family Trusts.

Many people set a Trust up and expect it to remain confidential. So is that a potential cause of mistrust particularly if the beneficiaries may not be aware of the Trust (for example, a parent might not want their children to know that they are likely to receive benefits). In addition, there may be beneficiaries who, in practice, will only receive funds in an extreme situation, such as close relatives pre-deceasing them.

Sometimes Trusts are portrayed as just tax avoidance vehicles. That said, I can`t envisage any circumstances in which it would be advisable to set up a Trust, just to gain tax benefits.

Remember, in setting up a Trust, someone is handing over the ownership of his or her assets. This is a significant act and as such, only makes sense if they have a clear set of objectives that they want to achieve with those assets.

In summary, the key attractions of Trusts are;

• their ability to ensure that the trustees use the assets as intended, and,
• until that point, the assets are managed appropriately.

To conclude, assuming you take the appropriate advice, where necessary, I firmly believe Trusts can be trusted. 

Although every effort has been made to ensure that the information provided in this article is accurate and correct, the information provided does not constitute any form of financial advice. We recommend that you take financial advice before making any financial decisions.