What is a Lifetime Trust fund?

Key Features of a Lifetime Trust

1. Creation During Lifetime: Unlike a will trust (which takes effect after death), a lifetime trust is established while you’re alive. It allows for assets to be managed immediately.
2. Managed by Trustees: Trustees are appointed to hold and manage the assets on behalf of the beneficiaries. These can include yourself, family members, friends, or professionals.
3. Control and Flexibility: You can specify how and when assets should be distributed, whether as a lump sum, income, or under specific conditions (e.g., when a beneficiary reaches a certain age).
4. Types of Lifetime Trusts:
   • Bare Trusts: Assets are held in the name of a beneficiary, who has an absolute right to them once they come of age (typically 18 in England and Wales).
   • Discretionary Trusts: Trustees have flexibility over how and when to distribute assets to beneficiaries, offering more protection.
   • Interest in Possession Trusts: A beneficiary has the right to income from the trust assets during their lifetime, but the capital typically passes to others later.
5. Irrevocability: Many lifetime trusts are irrevocable, meaning once assets are transferred into the trust, they are no longer part of your estate.

Advantages of a Lifetime Trust

1. Inheritance Tax (IHT) Planning:
   • Lifetime trusts can help reduce the value of your estate for IHT purposes. If the trust is established more than seven years before your death, the assets may fall outside your estate, avoiding IHT on them.
   • Certain trusts, such as discretionary trusts, can limit IHT liability by distributing assets strategically.
2. Protection of Assets:
   • Safeguards assets from creditors, divorce settlements, or spendthrift beneficiaries.
   • Provides security for vulnerable beneficiaries (e.g., minors or those with disabilities).
3. Avoiding Probate:
   • Assets held in a trust do not go through probate, meaning faster distribution to beneficiaries.
   • Ensures confidentiality, as trusts are private and not subject to public record like wills.
4. Control Over Distribution:
   • You can dictate how and when beneficiaries access funds, e.g., limiting access until they reach a certain age or ensuring funds are used for specific purposes (e.g., education).
5. Means-Tested Benefits:
   • Assets in certain trusts may not count towards means-tested benefits eligibility for beneficiaries.

Disadvantages of a Lifetime Trust

1. Cost of Setup and Management:
   • Setting up a trust can be expensive, involving legal and professional fees.
   • Trustees may charge ongoing fees for administration, particularly if professional trustees are appointed.
2. Potential Tax Implications:
   • Inheritance Tax: Lifetime trusts may attract IHT if the value exceeds the nil-rate band (currently £325,000). A 20% IHT charge may apply when setting up the trust if it exceeds this threshold.
   • Periodic Charges: Some trusts are subject to a 10-yearly IHT charge (up to 6% of the trust’s value) and exit charges when assets are distributed.
   • Income and Capital Gains Tax: Trusts may have to pay tax on income or capital gains generated by trust assets, often at higher rates than individuals.
3. Loss of Asset Control:
   • Transferring assets to a trust means you no longer own them outright. While you can be a trustee, you must act in the best interests of the beneficiaries, not yourself.
4. Complexity:
   • Trusts involve legal and financial complexities that require professional advice to establish and maintain.
   • Mismanagement of the trust could lead to disputes or unintended tax liabilities.

Who Should Consider a Lifetime Trust?

• Individuals with significant wealth who want to reduce IHT liabilities.
• People who want to protect assets for specific beneficiaries, such as children or vulnerable family members.
• Those looking to avoid probate and ensure efficient asset distribution after their death.
• Parents or grandparents who want to fund specific purposes (e.g., education) while retaining some control over the timing and use of funds.

Types of Assets Suitable for a Lifetime Trust

• Property (e.g., family homes or investment properties)
• Cash or savings
• Investments (e.g., stocks and shares)
• Business interests

Key Considerations

• Seek professional advice from a solicitor or tax adviser to ensure the trust is set up correctly and aligns with your estate planning goals.
• Choose trustworthy and competent trustees, as they will have significant responsibility for managing the assets.

By carefully setting up a lifetime trust, you can achieve financial protection, control, and tax efficiency while providing for your beneficiaries in a structured manner.

If you would like to open a personal injury trust bank account on the Monika platform, simply contact us and our friendly banking team will be happy to assist you with this.