Trusts - sorting out your financial affairs

Trusts can be a useful way of avoiding tax and ensuring that assets are passed to your intended beneficiaries.

The world of trusts has radically changed since 22nd March 2006. Careful thought needs to be given to the establishment and administration of a trust particularly with a view to tax. Consideration also needs to be given to the timing and order in which trusts are created.

There is potentially more tax reporting to do under the new rules as HM Revenue & Customs attempts to secure ever more tax revenue. However the new rules can also work in the favour of many individuals wishing to look after their beneficiaries in a tax efficient manner.

The main change in the Finance Act 2006 relating to trust taxation was to bring most interest in possession trusts created after 22nd March 2006 into the chargeable transfer regime along with discretionary trusts. Previously they had normally been treated as potentially exempt transfers. As a result in many cases tax forms IHT100 and IHT100a need to be completed when the trust is created.

The forms and guidance notes can be accessed on the HM Revenue & Customs website at http://www.hmrc.gov.uk/cto/forms12.htm .

Reasons for creating a trust could include:-

To provide for the education, maintenance and benefit of your children.
To provide for a disabled person.
To mitigate inheritance tax.
To protect family assets and ensure that they are passed down to your own bloodline.
To help ensure the proceeds of a life assurance policy or pension plan can be paid quickly to the intended beneficiaries, in a tax efficient manner and without having to wait for a grant of probate or letters of administration.

Trustees are appointed to manage a trust and they are the legal owners of the trust assets. Their investment powers will be determined by the wording of the trust instrument, by statute or a combination of both. The Trustee Investment Act 2000 introduced significant legislative reforms particularly with regard to trustees’ powers of investment.

For further information visit www.opsi.gov.uk/acts/en2000/2000en29.htm

Note: Further information about the use of trusts in wills can be found under the wills page of our website.

For more information and advice please contact Expert Financial Solutions.

Updated: June 2007

Expert Financial Solutions Ltd are independent financial advisers (IFA) / financial planners based in Witney, Oxfordshire. We serve the local community in and around Abingdon, Banbury, Bampton, Bicester, Burford, Chipping Norton, Cheltenham, Cirencester, the Cotswolds, Henley on Thames, Kidlington, Lechlade, Oxford, Wantage, Witney and Woodstock. We specialise in pensions, retirement planning, pension annuities, investments including PEP, ISA, OEIC, unit trusts and investment bonds, and inheritance tax (IHT) mitigation and trust investment. One of our advisers is a Chartered Financial Planner and we are proud of having Oxfordshire's only Resolution qualified and accredited IFA for pensions on divorce.