Part of Our “Financial Planning Insights” Series

At Simpson Wood, our “Financial Planning Insights” series explores key financial products and strategies that could benefit you. Each month, our Financial Planners delve into how these products work, who they are best suited for, and offer practical examples to bring these concepts to life.

In this edition, George Smith, one of our Associate Financial Planners, provides an in-depth look at how Trusts can be used to achieve a variety of financial planning objectives.

Choosing the Right Trust: Control vs. Tax Efficiency

There are various types of Trusts available, but they fall into two primary categories: Discretionary Trusts and Absolute Trusts.

• Discretionary Trusts offer greater flexibility. The Settlor can name a class of beneficiaries, such as “grandchildren,” meaning anyone within that group may benefit from the Trust’s assets. This gives Trustees more control over how and when the assets are distributed, but it comes with higher tax implications.
• Absolute Trusts , on the other hand, guarantee the beneficiary’s right to the assets. The settlor can rest assured that the intended recipient will receive the Trust’s assets. However, once established, no changes can be made to include new beneficiaries, such as additional grandchildren born after the Trust is set up. Taxes are assessed directly against the beneficiary.

Why Consider Using Trusts?

Though Trusts are commonly used in Inheritance Tax (IHT) planning, they offer many other advantages. Below are a few examples that illustrate how Trusts can be used elsewhere:

• Personal Injury Settlements: If someone receives a significant payout from a personal injury claim, placing the funds in a Trust can be more tax-efficient. Instead of receiving the lump sum all at once, the beneficiary can take income from the Trust as needed, reducing their immediate tax burden.
• Savings for Grandchildren: Grandparents can set up investments in a Trust with specific conditions for when and why their grandchildren can access the funds. This allows for long-term financial planning and control over when the assets are distributed.
• Blended Families: In situations where a couple has children from previous relationships, Trusts can ensure that the surviving partner continues to live in the family home for the rest of their life, with the property’s proceeds passing to the children afterward.

If you have any questions or would like to explore how a Trust might benefit your financial plan, give us a call at 01484 534431. Our team is here to help.

Please Note: The information provided is a general overview based on current UK taxation and legislation and does not constitute financial advice. For tailored guidance, we recommend consulting with one of our qualified Financial Planners.