21/09/2020

How To Use Trusts to Protect Family Wealth

Trusts have been used in the UK by the rich and powerful for over 1,000 years. But they are becoming more mainstream as wealth increases and taxes bite the middle classes. In this post, I explain what they are and some of the ways they can be used to protect family wealth. So let’s dive in…

What is a Trust?

Before I define a Trust, we need to get some jargon out of the way. I will be using English law terminology. Firstly, the ‘Settlor‘, this is the person who settles or sets up the arrangement. The ‘Trustees‘ are the legal owners of the assets and the ‘Beneficiaries‘ are the beneficial owners of the assets.

A Trust is a Common Law arrangement where the Settlor gives something, usually an asset, to the Trustees to look after for the benefit of the Beneficiaries. This means the Trustees have the right to take control of the assets. But their powers are limited by law and a document prepared by the Settlor which lays out what the Settlor wants to achieve with the arrangement.

Why Use A Trust?

A Trust enables the Settlor to retain control over the asset whilst not legally owning it. This can even extend to after the death of the Settlor. For example, Wills often contain Trusts to look after the deceased’s assets on behalf of young children until they are adults.

Care When Using Trusts

Although the above description may appear simple, there are many pitfalls ready to catch the unwary in this area. This is especially when working with expatriates. One of the main reasons for this is that often jurisdictions which are not based on Common Law do not recognise Trusts. This can have unintended consequences concerning tax and the degree of control the Settlor has on the assets. Therefore if you are an expatriate considering using this type of structure to protect your family’s wealth, you should take specialist legal and tax advice.

Are Trusts Like Companies?

There are similarities between Trusts and Companies. For example, they are both legal entities which means they can transact in their own name. However, taxation and reporting standards are different and vary from place to place. One of the key advantages of a Trust under English law is that the accounts do not need to be made publically available. This gives an element of privacy whilst remaining in a well-regulated environment.

Summary

Trusts are a Common Law arrangement enabling the Settlor to retain control over assets in the Trust without owning them. They are a key component in Estate planning which is becoming increasingly important for UK expats with Estates in excess of £1,000,000 worldwide.

If you would like to discuss any of the issues raised in this post, leave me a message here, call me on 050 594 5217 or make a reservation in my diary by clicking here.

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Stuart Porter - Expat Financial Advisor UAE
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