Trusts are a fundamental component of estate planning, with a rich history rooted in the feudal system of medieval England. Originally designed to ensure that property was handled according to the wishes of the landowner, trusts today are sophisticated tools used to manage assets, protect wealth, and plan for future generations. At Prestige Legal Services, we understand the complexities of modern trusts and are dedicated to supporting our associates – estate planners, Will writers, and financial advisers—with in-depth knowledge and expert drafting solutions.
A Brief History of Trusts
Trusts date back to the time when English knights left their estates to fight in the Crusades, entrusting their land to fellow knights. This arrangement was intended to preserve the estate for future generations and to manage the property in the knight’s absence. Over time, this practice evolved into the legal structure we recognise today, where a trustee holds property on behalf of a beneficiary, according to the terms set out by the settlor.
Understanding Intervivos and Will-Based Trusts
For estate planners, distinguishing between intervivos trusts and Will-based trusts is crucial:
– Intervivos Trusts: Also known as living trusts or lifetime trusts, these are set up during the lifetime of an individual. They can be revocable, allowing the settlor to alter or dissolve the trust as needed, or irrevocable, which are permanent and typically used for tax planning or asset protection.
– Will-Based Trusts: These trusts are established within a Will and only take effect upon the death of the settlor. They are essential tools for managing inheritance, protecting vulnerable beneficiaries, and reducing potential inheritance tax liabilities.
Exploring Will-Based Trusts
When it comes to Will-based trusts, there are several types to consider, each serving distinct purposes:
– Bare Trusts: In these trusts, the beneficiary has an immediate and absolute right to both the capital and income held in the trust. An example would be a grandparent leaving shares to a grandchild, who gains full control over them at the age of 18.
– Interest in Possession Trusts: The beneficiary receives income generated by the trust for life or a specified period. For instance, a spouse might receive income from a rental property held in trust until their death, after which the capital passes to the children.
– Discretionary Trusts: Trustees are given the discretion to decide how much and when each beneficiary receives distributions. This type of trust is beneficial for managing assets among a group of beneficiaries, such as siblings.
– Settlor-Interested Trusts: The settlor themselves benefits from the trust during their lifetime, such as in a trust designed to protect assets while providing income to the settlor.
Deliberate Deprivation and the Importance of Contemporaneous Notes
Estate planners must be aware when it comes to deliberate deprivation—where assets are intentionally disposed of to avoid care costs or reduce inheritance tax. It is essential to maintain contemporaneous notes documenting all advice given and decisions made. These notes serve as a legal record, protecting both the client and the planner, and are critical in cases where financial decisions are scrutinised. We live in a contentious society and Wills are being challenged for often than before.
The Prestige Advantage
At Prestige Legal Services, our team of drafters are STEP qualified and come from a legal background, bringing a wealth of experience and expertise to every case. We support our Associates with ongoing training and resources, ensuring that they are equipped to offer informed, strategic advice tailored to the needs of their clients. If you ever have a question about a case, get in touch with our team. That’s what being an Associate of Prestige is all about.
We will be hosting some Trust training soon so be sure to stay tuned in for our newsletters and email communication.