Pomona Wealth, in this note, looks at the structures often used in legacy planning.
By REBECCA.ELLIS and PASCAL.CREPIN
WED, AUGUST 23 2017-theG&BJournal – What is the purpose? People usually set up a family trust because there is some benefit from no longer personally owning an asset. A family trust may be useful to:
Protect family harmony.
To ensure each of your children receives the amount that you wish.
Protect selected assets against claims from people you are in business, for example, to protect assets from the potential failure of a business venture.
Set aside money for special reasons, examples are commonly for gifts for a child or grandchild’s education.
Ensure your children, not their partners, keep their inheritances.
Avoid unwanted claims on your estate (your wealth) when you die
What is the difference of a trust compared to a will?
1) Privacy - One big difference is a trust is not made public, upon your death, your estate will be distributed in private. A will, on the hand, is public record and so all gifts will be public as well.
2) Time - Going through the process of probate (the word for ensuring a will is properly registered) can take many months to complete. And if there is an objection to the will it may even take years. With a will, your assets are distributed as you would like immediately through which your assets are distributed according to your wishes.
3) Potential future Government Taxes – As governments need more funds, they are changing rules.
The settlor can have the power to appoint and remove trustees. This is an important power that you can also transfer to someone else if you prefer.
The people who manage the trust. If you are the settlor you can also be a trustee. It’s also a good idea to appoint an independent trustee like a lawyer or accountant.
The people who benefit from the trust, for example, you or members of your family.
Typical Types of Trusts:
Those where the income or benefit must be given to the specific beneficiary – it is his or hers by right. There may be more than one beneficiary but they will all have a fixed entitlement.
Discretionary type trusts:
Benefits are allocated at the trustees’ discretion to any one or more of several beneficiaries. The trustees might even decide, for a time, to benefit no one; the income being accumulated for future use. In deciding how to exercise their discretion the trustees will take account of your wishes and the best interests of beneficiaries over time.
You may be inclined to make regular donations to charity or you may have a particular interest in some worthy cause. Rather than make regular payments out of income or a legacy to a national charity over which you have no control, you could create your own charity either in your lifetime or on your death by creating a charitable trust in your will. Gifts to such a trust are free of capital gains tax and inheritance tax. The income arising will not generally be assessed to tax. Of course, the trust can only be used for charitable objects, i.e. the relief of poverty, the advancement of religion, education or the public good. Charitable trusts can last forever – a truly lasting memorial.
Vulnerable person trusts:
It is possible to set up special trusts for the benefit of disabled beneficiaries. Although these can be discretionary or interest-in-possession trusts, during the lifetime of the disabled beneficiary, special tax rules apply.
The fees are dependent on the circumstances and the assets that you wish to hold in the trust. The Trustee is legally responsible for booking keeping, accounting and risk management of these assets.
A trust enables further protection of your assets and protection of your wishes as these are a globally recognised as tool to protect the passage of assets
There are different types of trust which can suit business as well as family assets and the purpose, and questions of control and how you wish to pass the assets will shape which type of trust is selected.
Ellis and Crepin are both of POMONA WEALTH, A Personal investment advisor, based in Zurich |REBECCA.ELLIS@POMOMAWEALTH.COM|PASCAL.CREPIN@POMONAWEALTH.COM