As part of your year-end planning exercise, take a moment to consider what would happen to your assets and surviving family if you were no longer able to care for them. Then consider the potential benefits of setting up a trust. Trusts are an effective means of helping protect important assets, providing for beneficiaries and managing taxes. And, contrary to popular belief, trusts are not just for the wealthy.
A qualified attorney can help you set up a trust fairly easily that can be used for any number of practical purposes, such as:
Controlling assets and providing security for beneficiaries.
Providing for beneficiaries who are minors or who require expert assistance managing money.
Avoiding estate or income taxes.
Providing expert management of estates.
Avoiding probate expenses.
Maintaining privacy.
Protecting real estate holdings or a business.
Trust Definitions - A Quick Primer
A trust is a legal arrangement in which you, the owner of the estate and the trust’s grantor, transfer the legal title of that estate to somebody else - the trustee - for the purposes of benefiting one or more third parties - the beneficiaries. The trustee, who may be a person or corporation, is given title to the property in accordance with the terms of the trust agreement.
There are two general categories of trusts: revocable and irrevocable. Revocable trusts can be changed or “revoked.” Irrevocable trusts cannot be changed once they are set up. Most revocable trusts become irrevocable at the death or disability of the grantor. The assets you place into an irrevocable trust are permanently removed from your estate. Income and capital gains taxes on assets in the trust are paid by the trust. Upon your death, the assets in the trust are not considered part of your estate and are therefore not subject to es Read the rest of this entry »
While “Estate Planning” is the process of planning to pass assets from one generation to the next, “Legacy Planning” is the next generation of Estate Planning. Estate Planning is the starting point, but Legacy Planning takes it beyond the basics. Legacy Planning recognizes that we are more than the material wealth we have acquired. Our material wealth is just one part of the equation. When we leave this life, we will leave more behind for our children. Perhaps more important than the material wealth is our value system, our guidance, and our protection. While we cannot stay with our families after we are gone, we can pass on our values and continue our guidance and our protection.
We can do this with a Family Wealth Trust. A Family Wealth Trust passes on our legacy, both our material and our experiential wealth. But, it does more than just hand our loved ones a pile of cash. It protects them. There are two levels of protection in a Family Wealth Trust. The first level, a Family Access Trust, provides divorce protection by keeping a child’s inheritance separate from his or her other assets. However, the beneficiaries have unfettered access to the assets.
Here are some of the risks that the Family Access Trust would protect against:
Your daughter marries someone who sees her as his meal ticket. When she puts her foot down, he divorces her, seeking one-half of the inheritance you worked hard to provide her.
Your spouse remarries and then succumbs to cancer. His or her new spouse or significant other seeks to take the nest egg which you worked hard to build for your family.
While giving your beneficiaries unfettered access may seem appropriate for mature, wise beneficiaries, divorce is not the only risk they face in today’s world. If you are interested in greater protection, there’s the Family Sentry Trust. The Famil Read the rest of this entry »
Capital gains tax. Lets look first at the capital gains tax position of a transfer of property. On the assumption that the parent is UK resident and domiciled any transfer of property will be subject to UK capital gains tax. You’ll therefore need to calculate the gain arising and crucially to consider the offset of reliefs to reduce this gain.
It’s worth noting that the residence of the child is irrelevant for UK tax purposes. Therefore, even if they are tax resident in a tax haven, the UK resident and domiciled parent will still have to consider their own capital gains tax position.
As parents are classed as ‘connected’ with their children for capital gains tax purposes, any transfer from the parents to the child is treated as a market value transfer. As such, even though the children don’t pay any proceeds to the parent for the property when calculating the capital gain it is the market value of the property that needs to be considered.
The gain will therefore represent the uplift in value from the date of acquisition or probate value to the market value at the date of transfer. Note if the property was acquired before March 1982 there are special provisions that can apply to deem the cost to be the market value at March 1982.
What reliefs are offset?
It is the reliefs that can significantly reduce any capital gain. The main reliefs that any parent would be looking to consider to reduce the capital gain would be:
- Indexation relief if the property was acquired before April 1998. This adjusts the cost (or probate value) for the effects of inflation up until April 1998
- Taper relief. You’ll need to consider what type of property it is. If you’re looking at transferring a residential property it will nearly always be a non business asset. This will reduce the capital gain by up to 40 Read the rest of this entry »
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