Nov 2019
It’s true that many consider trust funds as an outdated concept, but it might be time to dust them off – particularly if you’re looking to protect elderly or vulnerable members of the family.
In the past, trusts have been labelled as authoritative structures, to be used when a beneficiary “cannot be trusted” to look after their own funds. In the process, many tend to overlook something called a protective trust, but, as the name suggests, could potentially do the world of good when it comes to protecting families.
Protective trusts provide significant asset protection and tax benefits, particularly where a beneficiary has what’s known as a “life interest” in the assets contained within that trust. A “life interest” could be, for example, in a family property or heirloom in a large sum of money.
This particular type of trust is covered by section 33 of the UK Trustee Act 1925, which states that the income must be paid to the principle beneficiary during their lifetime AND if there is forfeiture, the trust will automatically convert to a discretionary trust. At this point, it can be used for maintenance and support of that principle beneficiary, their spouse or their children.
Why would you need a protective trust? Well, the most obvious is if you wish to leave a provision for a disabled beneficiary, but may be concerned about financial management or abuse from third parties. Adding the protective element can safeguard the individual against any unscrupulous theft, or leave them in any vulnerable position.
Some choose to include a protective trust into their wills, particularly if one half of a partnership wishes to leave property to a spouse and they wish to plan ahead for inheritance taxes. There are also further tax planning opportunities for families who may run businesses together, for example.
If you think a protective trust could be beneficial to a family member, or you’d like more information about setting up a protective trust, get in touch with Downs Solicitors to see how we can help.
