Lowes Magazine Issue 129

How trusts can help when estate planning

Lowes Adviser, Chris Large, considers the use of trusts; where they are applicable and how they can help in estate planning and the transfer of family wealth.

When we are looking at passing on family wealth tax efficiently, one of the main ways to do so is by giving the money away. But often we want to retain some control over the money while also avoiding the rule that keeps that wealth as part of an estate for seven years. Trusts are an effective way to do this and have been used in estate planning for many years. There are various types of trust available and depending on the trust, money can be passed between family members with the trust creator retaining some control over the assets. So, what are the main benefits of setting up a trust? Estate planning: A trust can be a particularly useful tool for estate planning, allowing individuals to manage and distribute their assets according to their wishes, as well as potentially reducing inheritance tax liabilities. Asset protection: Trusts provide a level of protection for assets, safeguarding them from certain legal claims, creditors, or other potential risks. This can be particularly beneficial for protecting family wealth. Probate avoidance: Assets held in a trust typically avoid the probate process, enabling a more efficient and private transfer of wealth to beneficiaries. This can save time and costs that come with probate proceedings. Controlling asset distribution: When setting up a trust, specific instructions can be given on how and when assets are distributed to beneficiaries. This level of control can help ensure that assets are used responsibly and for the intended purposes, and are not frittered away. Privacy: Trusts offer a level of privacy, because they are not subject to public probate proceedings. It is important to note, the effectiveness of a trust depends on various factors, including individual circumstances, types of assets involved, and the specific goals of the person creating the trust. Seeking professional advice is crucial when considering the use of trusts in estate planning, to ensure the right trust is used and to avoid the pitfalls along the way.

Types of trust The main types of trust are: • bare trusts • discretionary trusts • mixed trusts • settlor-interested trusts

• interest in possession trusts • accumulation trusts • non-resident trusts

Why we should plan for long term care Latest research from retirement product provider, Just Group, shows that more than three quarters (76%) of over 45s say that they have not thought about care, planned for care or spoken to their family about it. Yet around two thirds of the same group (66%) say they don’t want to go into a residential care home, while 65% would be happy for carers to come into their home and just over half (51%) don’t want their children to become their care givers. The research also found that those with experience of finding a care home for a loved one with support from an adviser were nearly four times more likely to subsequently make their own plans for later life care than those who had made arrangements without adviser help. This was prompted in part by the realisation of how difficult it is to organise care, as well as how expensive it can be. The Government announced it was making changes to the social care system in England back in 2021. These included a social care cap: limiting the cost of personal care to £86,000 per person over a lifetime. The changes were due to come in from October 2023, but this has now been pushed back to October 2025. Financial support for long term care is a can that has been kicked down the road by the Government on several occasions. Therefore, it is important that we plan for the potential need for long term care as part of our retirement planning. Each type of trust is taxed differently and careful consideration must be given to which one is used if the right goals are to be achieved.

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