Benefits of a Trust
This article looks at the benefits of creating a trust and how it differs from a Will.
1. Probate Avoidance
A Will sets out what you expect to happen to your property after your death. It will also name the executors that you wish to administer your estate. However, the executors have little power to do a great deal until a court has granted probate. Without probate, a bank or insurer may be reluctant to adhere to any instructions it receives from those executors which can delay the distributions of assets to beneficiaries. Obtaining probate also takes time and has a cost.
With a trust, the legal ownership the asset is transferred to the trustees during your lifetime. This means that in the event of your death, probate can be avoided as the asset still has a legal owner. This enables the trust assets to be distributed to beneficiaries much more quickly than a will.
2. Avoiding potential disputes
It is not uncommon for a Will to be challenged where there is a dispute between family members or beneficiaries.
Whilst a trust can also be challenged, it is less likely unless it can be proven that the trust deed is invalid or the person that established the trust was influenced by a third party or lacked capacity. The trustees as legal owners of the assets held within it, will decide how the trust property is distributed to the beneficiaries in accordance with the terms of the trust deed.
3. Holding assets for a minor
A trust provides an excellent way of enabling property to be held on behalf of a minor. The trustees ensure that the property is properly managed until the beneficiary is older and more responsible to take possession.
4. Tax benefits
Any property held in a trust is no longer considered your property. This means that depending on the terms of the trust, assets can fall outside of your taxable estate. The tax benefits associated with trusts do differ jurisdiction to jurisdiction and so this is an area where very specific advice should be obtained.
5. Trusts allow flexibility
Trusts can be setup with various degrees of flexibility. For example, it is possible to create trusts that allow you as the creator of the trust to be able to benefit or be excluded and the option of having fixed or flexible beneficiaries.
6. Trusts can provide protection
When setting up a trust, your chosen trustees will continue to protect your assets after you have passed away or have lost the capacity to manage your own affairs. Therefore, the trustees can administer/distribute your assets should the unexpected happen.
7. Deciding who has control
A trust allows you to choose whom you will appoint the responsibility for managing the trust property. This flexibility means that your trustees could be family, friends or even a professional trust company.
You may also act as a trustee. This allows you to retain some control over the trust property and any decision-making powers during your lifetime.
Note: It is important to note that a trust may not be a suitable option for use in all jurisdictions. Anyone who may be considering the use of a trust needs to ensure that it is recognised in his or her home jurisdiction.