Trust can be very useful and effective when it comes to financial planning. However, many people are skeptical of them and distrust them. Pardon the pun.
The reality is that there is no need to be concerned about Trusts as they have been around for around a thousand years. Trusts date back to the Crusades, when the Knights went off to battle. Your local friendly Knight would have an agreement with a friend, quite literally to look after his castle and land whilst he was away fighting the wars. The friend would have a verbal agreement to be Trusted to look after the land until the Knight returned.
So, Trusts have a very long and established history. What is also interesting to note, is that Trust law has not change very often, so the options are well used and tested.
Who uses Trusts?
The perception is that only rich people use Trusts and that most of us don’t need to use them. The reality is that most trusts are used by ordinary people that are concerned about their money. And just in case you still think that you are only for the super-rich, here’s some interesting statistics.
A recent survey by Credit Suisse found that there are more than 2.4 millionaires and over 800,000 millionaire households in the UK. With house price increases over the last 30 to 40 years, for many they may have become asset millionaires without even realising it.
Why are more people turning to Trusts to help them with their financial planning?
Families setups are now more complex than ever
Around four in ten marriages ending up in divorce many of which will have children. Of great concern to many, is that their money may not pass to their children on their death. Without correctly drafted Wills and the use of Trusts, your wealth could end up in the hands of the wrong people on your death. Estate planning and the use of Trusts is vital to ensure wealth is distributed correctly and not in the hands of the wrong people.
Many people do not want to leave the distribution of their assets to chance
If the distribution of your wealth is important to you, it’s unlikely that you will want to leave it to chance. The distribution of wealth through the generations is not a simple exercise, it’s not like taking out a mortgage or arranging life insurance. It’s potentially complicated and many people want financial advice in the area of Trust planning.
More people could avoid the ‘voluntary tax’
Over £5 billion was collected by HMRC in Iinheritance Tax in the tax year 2017/18. And as house prices have increased so much and we have an ageing population, this amount is set to rise and rise. Inheritance Tax now affects more families, every year and the rise in property prices means it’s not just the wealthy who are impacted. As such more and more people want to do something about the amount of tax that will be due on their death. In some cases, the amount of tax due will be the biggest cheque that their beneficiaries write in their lifetime. The problem is getting that big.
In the words of Roy Jenkins, when speaking about estate taxes, “it is, broadly speaking a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.”
The reality is that many of use work very hard during our working lives, save our hard-earned money and simply wish to pass on our wealth to our children and grandchildren.
As such, this is leading an increasing number of people to look at Trusts, as way of controlling the distribution of their wealth to the next and subsequent generations.