Probate Valuation Of Chattels: Asset Protection Trusts Part 2

Trust property

The term ‘trust property’ applies to any asset that is held in a trust. This can apply to:

House or other buildings
Land
Shares, stocks and investments
Cash or other monies
Chattels e.g. antiques, jewellery, paintings or other collections

The cash and investments that are put into a trust are referred to as trust capital or fund. This capital may produce income, such as interest on savings or dividends on shares. The land and buildings may generate income from rent. Assets may be sold on in order to produce gains on the trust. The trust taxation depends of the its type and amount of income.

Role of the settlor

The settlor is the person who puts their assets into a trust, which is referred to as ‘settling’ property. The settlor may put the assets into a trust as soon as its created, or they can be added at a later date. All the aspects of managing and making decisions regarding the trust thereafter, falls upon the settlor. The settlor normally outlines the details of how the assets and therefore trusts are to be managed before and after death.

Some types of trusts can even bring income for the settlor. This type of trust is known as  ‘settlor-interested’ trusts. Certain tax rules may apply to these trusts however.

Role of the trustee

The trustee(s) have the legal rights to the assets that are held in a trust. Their roles include:

Dealing with the trust assets in accordance to the terms of the will or trust deed

Managing the daily tasks associated with managing the trust, as well as paying any applicable taxes on income that is gained from the trust

Make decisions on how to best invest the assets in the trust, or how to use the assets in the trust. The decisions must abide by the terms of the trust deed/will

Even if something happens to the trustees or if they change, the trust may continue to be in effect. The proviso is that there has to be at least one trustee. Some trusts require there to be at least two trustees. However, the trustee does not have to be a family member – a legal professional such as a solicitor can fill the role, while the second one can be a relative.

Role of the beneficiary

The beneficiary is the person(s) who benefits from the assets held in a trust. There may be more than one beneficiary, such as a group of family members or another specified group of people. The beneficiaries may either benefit from a trust equally, or in separate ways according to the wishes of the settlor.

The beneficiary may benefit in the following ways:

Only the income – e.g. income from renting a property held in a trust

Only the capital – e.g. they may receive shares of certain assets upon reaching a certain age

Both income and capital – e.g. they may receive the trust income and a discretionary interest in trust capital

As a beneficiary you may be liable for certain taxes to be paid on the income, on the other hand you may be able to claim some of it back depending on your income and financial situation.

Trusts upon death

A common sense approach applies when considering putting a person’s estate into a trust upon death. Although the share of the deceased’s property may need to be used for meeting certain care fees initially, the deceased person’s share can be placed into either an immediate post death interest (IPDI) trust or a discretionary trust. The former has an advantage of being fairly straightforward to set up and allows the surviving property owner to enjoy the right to occupy the trust property. Nevertheless, for means tested benefits the capital value of the fund is disregarded when the means of the person benefiting from the interest.

In cases where the testator (person who made the will) owns other assets apart from a house then an IPDI may apply to the entire estate. However, where the value of the small assets is not substantial it would be more prudent to only put the share of the house into an IPDI trust.

If the involved parties are not married or in a civil partnership, then the nil rate band discretionary trust will be required to make sure that it the nil rate band is used upon the first person to die, and ensure that only the excess would be liable for double taxation upon the death of the second person. This exists due to the fact that the transferable nil rate band benefit does not apply to unmarried or non-civil partner couples.

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