Accountancy | Tax Planning | Business Support

There are a wide variety of reasons why families decide to use trusts.  They can be effective tax planning tools but also hugely practical arrangements.  This is a very common area of advice for farmers.

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Most commonly used is a discretionary trust.

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A discretionary trust is a structure that can be used to hold and protect all types of assets.

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You will appoint trustees to the trust, simply those people that you trust to hold the assets now as though they owned them, but without the ability to benefit from them.  This can always be changed in the future, for example if that trustee dies before the assets are passed to the ultimate beneficiary.

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A Letter of Wishes should be drawn up, explaining the wishes of the original holder of the assets to guide the trustees’ decisions.

 

For example, if the original owner wanted the farm to pass to their farming child on their 35th birthday, the trustees would liaise with them at this point to discuss whether it was the right time, this is because the letter of wishes is not set in stone, but instead a guide to the trustees about what you would want to happen.

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The trust structure provides flexibility and protects assets if the owner wishes to gift them in their lifetime, and also takes into account inheritance tax reliefs and exemptions to maximise the value of assets passing to the beneficiaries if it is set up at the point of the owner’s death.

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Considerations before using a discretionary trust

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A trust may offer unrivalled flexibility and protection of your assets (for example in the case of taking the asset out of any divorce risk), however you should review constantly the need for the trust and ensure that it only survives for as long as it needs to, for example to hold assets until a farming child is deemed competent enough to take it on.

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If you would like to discuss this area of planning, or would like to review some trusts already in existence, get in touch.

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