For many people, a trust or trust fund is something they only know from movies or TV shows. They’re often associated with inheritance in wealthy families, who have great fortunes to protect. The reality though, is that trusts are put in place every day by people from every walk of life for a lot of different reasons.
Recent research from the Law Society of Ireland shows that almost half of all adults in Ireland have not planned for their future, with only 27% of Irish adults having made a will. This could leave many families in a precarious position should the worst happen, so it’s important to put arrangements in place in plenty of time.
In this blog post, we’ll look at what a trust is, why you might want one, and how it can help you and your family prepare for the future.
What is a trust?
A trust is a legal structure created by an individual (known as a settlor), whereby assets are transferred by the settlor to trustees, for the benefit of others (known as beneficiaries). These assets could be anything from property to savings, jewellery, cars or art.
When a settlor creates a trust, there is a split in the ownership of the trust assets (known as property). The legal ownership rests with the trustees but the beneficiaries are the beneficial owners (i.e., those entitled to benefit from it).
In practical terms, this means that the title to property or investments is held in the names of the trustees, and they are legally responsible for that property, but the true owners of it are the named beneficiaries or class of beneficiaries. The property the subject matter of the trust is applied by the trustees for the benefit of the beneficiaries, but control of the trust rests with the trustees. For example, if you create a trust with a house in it, the trustees have legal control over the house, but the beneficiaries will benefit from any rent or sales proceeds.
A trust can be created during your lifetime or incorporated in a will to be established after your death. Trusts are used to resolve lots of different types of legal problems or challenges, but for this blog post, we’ve put together a list of the five most common reasons to set up a trust.
Why should I set up a trust?
- To protect your assets
Trusts are often set up to protect assets that might have been built during the settlor’s lifetime. For example, he or she might have a family business, property or other investments that they want future generations to inherit. By placing the assets in a trust, the beneficiaries derive the benefit from the asset, but the asset is controlled and managed by trustees. These are usually people considered by the settlor to be best placed to protect the asset. They might be professionals such as consultants, tax advisors or solicitors, for example, or experienced business people who might be sufficiently qualified to protect and manage the trust for the beneficiaries.
An asset protection trust is one that is specifically designed by a settlor to protect assets from potential threats from either a third party or from the beneficiary themselves, for example a financially irresponsible beneficiary.
- To protect your beneficiaries
Clients who visit HOMS Assist to set up trusts are very often parents and grandparents who want to provide for their children or grandchildren in the event of their passing. People who have worked hard and built wealth will usually not want their children to inherit substantial assets at an immature age, which could have negative consequences for the child.
Trusts are very flexible structures and can be tailored to suit the parents’ or grandparent’s wishes by either providing that the children receive assets at a fixed age (such as 18, 21 or 30) or on the occasion of a certain event (such as their graduation or marriage). It can also be designed to provide full discretion to the trustees to distribute the trust assets when they see fit.
Aside from children, trusts are frequently used in lifetime and in wills to benefit adults who might be incapable of managing the gift or inheritance themselves. In this way, they can protect vulnerable beneficiaries such as those incapable of managing their own affairs. For example, the beneficiary might:
- Be financially irresponsible
- Be vulnerable or easily influenced by others
- Suffer from addiction problems
- Suffer from physical or mental disability
- To provide for future generations
At HOMS Assist, we regularly help people secure the future for both their spouse and children after their death. This can be challenging for those in a second marriage with children from previous relationships, who want to look after their new spouse or partner whilst also ensuring their assets are preserved for their children or other loved ones.
A trust can be very useful in this type of situation, as it allows certain beneficiaries to enjoy the use of trust property for a period of time (usually their lifetime). This gives comfort to the client and their partner, while also allowing for the final benefit to rest with nominated children. For example, a settlor may create a structure to allow his or her partner to live in a house or receive rental income from a house during their lifetime, but after that partner’s death, the house immediately passes to the settlor’s children.
- To facilitate tax planning
Trusts are regularly used in tax planning, which can be complex. Discretionary trusts in particular are often used to allow for a period of tax planning by deferring Capital Acquisitions Tax and giving breathing space to those involved in the trust to put plans in place. This might involve the intended beneficiaries altering or adapting their affairs to avail of tax exemptions or reductions such as dwelling-house relief, agricultural relief and business relief. Trusts can also:
- Allow flexibility, particularly where a “wait and see” approach is best suited to the beneficiaries’ circumstances
- Ensure that beneficiaries are sufficiently mature to handle an inheritance of significance
- Protect any social welfare entitlements of beneficiaries
- Protect assets from creditors as beneficiaries do not actually own the trust assets
- Provide for adult beneficiaries who suffer from alcohol, drug or gambling addictions, minimising the risk of reckless management
In cases such as these, it’s imperative that you make arrangements with a qualified discretionary trust solicitor who is experienced in trust law in Ireland and comfortable liaising with tax advisors. That way, they can work together to ensure comprehensive protection for you and your loved ones.
- To avoid probate
In most circumstances, the assets named in a will can’t be distributed to beneficiaries until a Grant of Probate is issued. This gives the will’s executor(s) the legal authority to access bank accounts, transfer property, liquidate assets or carry out other specific instructions.
Probate can be time-consuming and sometimes complicated, which is why it’s usually handled by a solicitor. One of the big benefits of a trust is that it can allow clients to side-step the probate process entirely. A trust’s assets do not belong to the settlor; therefore on the settlor’s death the asset does not form part of their estate and the beneficiaries do not need to wait for a Grant of Probate to access the trust assets.
Very often life policies are written in trust allowing the insurance provider to pay the policy out to the beneficiaries almost immediately rather than having to wait for probate. This is particularly important in cases where ready access to funds is imperative, such as in the care of small children or vulnerable adults.
How to set up a trust
A trust is a very useful mechanism that can offer comfort to the settlor now and protection to the beneficiaries in the future. It’s a way to safeguard all that you’ve worked for and benefit those that you care for.
However, trusts need to be carefully drafted in order to be effective. Quite often, you won’t be there to rectify any issues when the trust is executed, so you have to ensure it’s airtight now. That means employing the services of an experienced trust solicitor who can help you navigate its complexities and challenges.
At HOMS Assist, we have many years of experience in dealing with all legal aspects of trusts. If you’re thinking about setting up a trust in Ireland, the first step is to get in touch with Claire Tuohy, solicitor and member of the Society of Trust and Estates Practitioners. You can reach her on 1800 202 207 or via email at [email protected]. No matter where you’re based or what your circumstances are, she and her team can help you take care of the future while you get on with enjoying the present.
