Three clear ways to ensure your wishes are fulfilled when setting up a trust
A trust can be a fantastic way to provide opportunities to the next generation. Learn three clear ways to make sure your wishes are fulfilled by trustees here.
As your family grows, so too does your outlook on the future.
Having children may have shaped the way you see the world, and when you look ahead towards the coming years, you might have a clear idea of the opportunities you want to provide for the next generation.
If you are looking for ways to share your wealth with your loved ones, a trust can be a constructive move both for its beneficiaries, and for your own financial plan.
Placing some of your wealth in trust, rather than simply leaving it as inheritance, could enable you to:
- Designate funds for a specific purpose, or to be used at a specific time
- Mitigate your beneficiaries’ Inheritance Tax (IHT) bill when you pass away
- Help children and grandchildren benefit from your wealth now, rather than later
- Maintain some control over how your wealth is used when passed down.
When you set up a trust, its “beneficiary” – the person who will have access to the funds – should be made aware of how you wish for the money to be spent. In addition, the “trustee” – the person managing the trust – should be given clear instructions around your preferences.
Read on to find out three clear ways to make sure your wishes are fulfilled when setting up a trust.
1. Choose the right type of trust for you
There are many types of trust you can set up, all of which have slightly different parameters that could affect how closely your wishes are adhered to.
Here are three popular types of trust, and how they might help you make your wishes clear.
A bare trust
A bare trust is a simple form of trust that nominates a beneficiary and gives them access to funds at a certain time.
Until that time arrives, the trust is overseen by your nominated trustee – which could be a friend, family member, or professional close to your family.
It could be that you pass money to your children this way, allowing them the freedom to choose how they spend this money once it is given.
A discretionary trust
A discretionary trust places power in the hands of the trustee.
If you set aside funds in a discretionary trust for your grandchildren to use when they grow up, you could nominate their parents as the trustees. Then, their parents will have control over when the money is handed over, in what form it is given, and what it is spent on.
For example, they could decide that their children can only access the funds at age 25, and must use part of it to pay off educational debt they have accrued.
An “interest in possession” trust
An “interest in possession” trust protects your wealth, even after you have passed away. A beneficiary of an interest in possession trust will receive an income from the assets placed within the trust – such as shares – but they cannot access the assets themselves.
This type of trust lets you limit trustees’ control over your wealth, while still providing for your loved ones as you see fit.
By carefully selecting the type of trust you want to set up, you can determine the amount of control you will have over how the funds are used. From this, your beneficiaries can have a clear idea of what to expect, and the boundaries in place, when they gain access to their trust.
2. Discuss the wording of your trust deed with a professional
A crucial aspect of laying out your wishes when you create a trust is its wording.
Without clear instructions, both your trustees and your beneficiaries could encounter confusion when managing the funds.
For example, if you are placing cash assets in trust, you must make it clear whether these can or should be invested by the beneficiary. Or, if the trust involves property, you should outline whether or not the beneficiary can sell the property and use the profits as income.
Your Kellands financial planner can help connect you with an experienced solicitor who can review your trust deed and advise on detailed wording. That way, your wishes can be made crystal clear, leaving no room for error or confusion after you have passed away.
3. Write a letter of wishes
Although a letter of wishes is not legally binding, it could help clarify some of your preferences to the trustee.
Especially if you have a close relationship with those involved – such as a spouse, child or grandchild – including a letter of wishes could reiterate those laid out in the trust deed.
You can choose to make this letter entirely confidential if you wish, and use it to explain some of the choices made in the trust deed.
An example of this could be family property. If your trust involves property that has been in the family for generations, you may wish for the property to remain in the family, rather than to be sold on to an outside buyer. A letter of wishes could express your emotional connection to the house, and provide your trustee with the guidance they need to carry out your wishes after you’re gone.
Get in touch
For guidance on setting up a trust, laying out your wishes, or any other financial matter, email us at hale@kelland.co.uk, or call 0161 929 8838.
Written by Madeleine Goode.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.