"The history of trusts dates back centuries with the likes of Charles Dickens and the Jane Austen basing entire novels about the fortunes of wealthy families dictated by terms of trusts. That seems a far cry from the world we live in today, however, while the taxation of trusts has moved on since then relics of the past still exist. So it’s sensible the government consider the taxation of trusts and how they fit in modern day society.
"However, we’re pleased to see that the government are not planning to tear up the rule book and do away with trusts completely. As they acknowledge in their consultation, trusts have their place and what is needed is a clear and transparent regime so that any concern over them being used for unsavory circumstances is removed.
"Perhaps because of its historic origins some people assume trusts are only for the rich. However, they have a particularly important place in today’s society. In fact they are perhaps even more important after this week’s announcement by the Ministry of Justice that they are increasing probate fees to up to £6,000 depending the value of the estate. Using trusts can help reduce the value of an estate for inheritance tax purposes, meaning a lower charge will apply. People concerned about how beneficiaries will pay the probate fees could leave sufficient funds in a life insurance policy, and provided the policy is written in trust, it can be accessed immediately on death, without the need for probate
"They are also a particularly important financial planning tool given that complex families are the new norm. Complex family relationships can lead to challenges when it comes to how wealth is handed down. For instance if a parent dies without a will and the surviving spouse remarries, the new spouse could stand to inherit the family wealth instead of it being passed to the children.
"Trusts have an important role in this as research by Quilter* shows that 65% of people think trusts are a good way to safeguard wealth and 62% of respondents who had set up a trust said it gave them peace of mind. A further 60% chose trusts because it allowed them to choose their beneficiaries and 50% believed they offered an element of security.
"It’s vital this consultation is not done in isolation. The Office for Tax Simplification is already undergoing a review into inheritance tax and trusts are often used as a tool for IHT planning. In fact the trust consultation has appendices and sections dedicated to IHT. The government needs to ensure it has a joined up approach otherwise it will be making an already complicated tax puzzle impossible."
*Research conducted by Toluna surveying 779 respondents, aged 35+, with £50K + investable assets, who take financial advice