Creating trusts for everyday family situations

For most people, the act of setting up a trust is not something they can see themselves doing. It gives the impression of being the preserve of the rich and famous – something that film stars might do to ensure that their offspring, a gaggle of (possibly undeserving) "trust fund babes", don't come into the money at too young an age.

But for a private client solicitor, a trust is just a useful tool. It can solve some of our clients’ tricky problems and may also reduce their inheritance tax bill.

Providing for children with disabilities

Take the Baker family. The youngest child Joel, who is 16, has an autism spectrum disorder and will never be able to live independently. Mr Baker's mother, who is very fond of Joel, wants to leave him a handsome sum in her will. The Bakers realise that this kind gesture may backfire – if Joel inherits a significant sum of money, not only will he forfeit his right to receive means-tested benefits, but he will also be unable to handle it wisely and may possibly, as a vulnerable adult, be subject to financial abuse. So Mr Baker has a word with his mother, suggesting that she asks her solicitor about leaving Joel's money in trust for him instead. He points out that he and his wife could act as trustees, and later, their older daughters could take over. They all have Joel's best interests at heart and can ensure that the money is used to his best advantage.

Children - a first priority in second marriages

The Bakers’ neighbours, Heather and Bob, are shortly to marry. Each is divorced and has children from their previous marriage. They are preparing to make new wills, but secretly, they are both concerned: if they leave everything to their new spouse, how can they be sure that their share of the estate will eventually come back to their own children? Anything could happen – their spouse might marry for a third time, or need expensive care in later life, or simply change their will, and leave everything to their own children. Each feels nervous about raising the issue with the other. However, they need not worry. Their solicitor has experience of this type of problem and may recommend using a life interest trust to overcome their concerns. The couple can, in their wills, give their new spouse the use of their home during the survivor’s lifetime, allow them to move house, but make sure that the value of the property reverts to their own children when the second of them dies. They can extend the arrangement to the whole of their assets, and, in addition, give the trustees the power to make gifts directly to their own children during their surviving spouse's lifetime, if that spouse has no need of the assets in question.

Buying a flat for children – the smart way

Their friends Mr and Mrs Jennings have different concerns. Their elder child, Tom, is soon to start his second year at university. But finding the right accommodation is a problem – Mrs Jennings thought about buying a flat for Tom, but doesn't want to put it in his name, in case it gives him ideas above his station. Mr Jennings realises that if he and his wife buy the property themselves, they won’t have reduced the size of their estate or made any wise tax planning moves. And when they sell the flat in years to come, they may well be faced with a capital gains tax bill. This is where a trust can help. By setting up a discretionary trust, and making sure that the trust owns the flat, the trustees (who can be the parents) can allow Tom to occupy it as his main home. So Tom has a suitable place to live, the parents can look forward to inheritance tax savings in seven years’ time, and whenever the property is sold, there won't be any capital gains tax. If Tom is ungrateful, the parents, as trustees, can decide to buy a flat for their daughter instead. Quite an incentive for Tom to be a model tenant!

So trusts, far from being the preserve of the elite, can help people like you and me tackle a wide range of life’s problems – whether we live in Hollywood, Hayes or Hildenborough.

For further information please contact Jill MacMahon.