Benefits Of a Living Trust

There are plenty of different reasons and various circumstances in which a trust is likely to benefit.

A trust is a relationship between one or more people in which the “trustee” both holds and manages the assets for others who are known as the “beneficiaries.”

To understand the benefits of a trust, you must understand the different types of trusts available.

 

  1. Bare Trust

This type of trust is a nominee arrangement in which the legal title is held by the trustees on behalf of the beneficiary who happens to be the owner of the assets. As long as the person is older than 18, they are entitled to the legal transfer of the title.

A bare trust is typically for parents and/or grandparents who are looking to give a gift to someone younger. Also, in cases where there might be multiple owners of a specific asset but at the same time none are legal owners.

 

  1. Discretionary Trust

This is a type of trust in which the “trustees” have ultimate discretion when it comes to the distribution of income and/or capital and to whom are the beneficiaries. Because of this, it happens to be the most flexible trust. Likewise, it is the one that offers the trustee’s the most power. Therefore, you want to ensure you are choosing the right people to be the trustees in this case.

While tax does come first in this case, it is not usually the primary reason for establishing trust. Visit Net Lawman for more information on discretionary trusts.

 

  1. Life Interest Trust

The tenant of a life interest trust is typically entitled to any income that arises and/or they are entitled to use and live in any of the trust’s property. Typically, in this case, the trustees will have the ultimate power to benefit a larger class of beneficiaries. Typically, when the life tenant dies or if their interest is eliminated earlier, there will be either outright gifts or ongoing trusts for the other beneficiaries.

Now, you might be thinking about why you should start a trust and what are some of the benefits it offers?

Below, you will find some of the main benefits of starting a trust.

 

  1. Tax

This is one of the greatest benefits of starting a trust, but it shouldn’t be the primary motivating factor. There have been a lot of changes to trusts since 2008 because the Government viewed the establishment of trusts as one of the main vehicles being used for tax avoidance. While there are certainly still some benefits that trusts offer in terms of lowering taxes, it’s usually not the reason for starting a trust anymore.

However, it can be a major factor when an individual is looking to start a trust because there are relatively few drawbacks. For instance, a lot of the trusts that are created during the settlor’s life are going to be subject to inheritance tax which totals 20%. Typically, the perceived tax benefits of a trust are specific mechanisms put in place to keep the settlors or those deemed beneficiaries from ending up in a worse situation in comparison to having personal ownership.

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