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  • Zdjęcie autoraRadoslaw Salak

What is the Trust

Zaktualizowano: 11 wrz 2022

People’s awareness of certain issues is poor, so this time I’ll describe what a trust is.

Trust is a legal agreement that allows you to „give back” something valuable without losing full control over it.

Well, if it turns out that someone suddenly decides to leave this world, it sometimes happens that people have life insurance. Of course, only those who think seriously about securing their family in case something goes wrong.

You’ll be very surprised that you have to wait for the payment from the policy many months, and in the meantime the lawyers will fleece you  of all the savings, because their working hours are very expensive and there’re many things to do. But no one worries about such details until he has to look for a life policy.

I’m guessing that no one has told you what the whole „procedure” looks like in case someone dies in England.

And here the Trust is the salvation. You can put a life insurance policy in the Trust, choose who is to be paid the money (it’s good to think about it) and who is to be managed the entire transfer process.

It’s worth noting that the property registered in the Trust company isn’t subject to the estate and everything that is recorded in the Trust will be  exempt from inheritance tax, which reaches 40% in the UK (by default, there’s a certain amount released from the UK).

And most importantly, the payout is a lot faster than in the standard procedure.

You’ll learn more about the tax itself from the entry What is the UK inheritance tax?

How does the Trust work?

There are 3 different roles you need to know about signing the Trust.

  1. Settlor

  2. Trustees

  3. Beneficiaries

Settlor is no other than YOU who sets the rules on where money will go and who should manage it.

Trustee are people who manage the Trust. Trustees legally represent your will, which was written in the Trust. So if you die, selected people (Trustees) will be responsible for all claims and payment management on your behalf.

Beneficiares are people, who have been chosen by you in Your Truth. When you die, the Trustee gets money from the insurance company and then he  transfers it directly to the beneficiaries or takes care of them until, for example, children grow up.

The advantage of this solution is that the money from the Trust isn’t taken into account in the estate.

Does it seem simple to you?

There’re many different types of trusts depending on what you want to get. On government websites, I found a few main types of trust:

  1. bare trusts

  2. interest in possession trusts

  3. discretionary trusts

  4. accumulation trusts

  5. mixed trusts

  6. settlor-interested trusts

  7. non-resident trusts

It’s worth adding that every trust can be subject to other taxation. So as you see, without proper knowledge, don’t take it for yourself. It’s best to outsource this to a trusted financial advisor.

Important things about the Trust

It’s worth remembering that you can assign not only money, but also investments, land, and buildings to a trust.

Why is it so important?

Because you can’t know every detail unless you’re passionate about finances like me. If you have a company, you probably own company shares and you can give them to children, but not necessarily to your wife.

For example, you don’t trust your wife and you have some suspicions that she secretly meets your friend like in a Brazilian series.

Then, it’s worth knowing how to protect children.

And still a small detail, in Scotland, children at the age of 16 will receive money from the Trust, but in England and Wales only when they’re 18 years old. Did you know that? This is quite important, because in order to be able to give children the property, they must be „adults”, alternatively you can indicate the guardian.

Why is it so important? Because it may turn out that the indicated guardian is the same person who secretly meets your wife. So when you see life is sometimes surprising.

In this situation, it’s better to live in Scotland.

What kind of Trust do you have?

It’s worth knowing what you have, whether you can change beneficiaries or not. Do you have a single or joint policy? For example, some Trusts allow you to change beneficiaries during the Trust, while others not allow it and once established beneficiaries can’t be changed. A new Trust should be made.

Here I’m returning to the situation with an unfaithful wife. We’re deleting her from the Trust and rewriting everything on Radio Maryja or children, if you have one. In the case of a joint policy and the Trust, the situation becomes more complicated.

Very important

You should choose a well-known and decent company for a trust. Don’t follow the price and it’s necessary to consult a financial advisor who will explain everything in a smooth way, especially if you have a complicated family situation.

Then your situation requires discussing what needs to be done.

Who should be chosen for the Trust’s contractor?

It’s best to choose someone you trust very much. It can be a family member, a close friend (but not the one who likes your wife what I mentioned earlier), a lawyer. Of course, he must be over 18 years old, be healthy in his mind, and can’t be bankrupt.

And most importantly, if you choose someone, then this person must agree to it. So, it’s worth considering it well.

Remember about taxes

In fact, the Trust is established for two reasons. One is taxes, you don’t have to pay 40% tax on inheritance and the second reason is time. The payment of the policy in the Trust is only a few weeks in the case of a normal procedure.

If you don’t have a Trust, you have to wait for money for about half a year and you have to reckon with the huge costs of several thousand pounds for lawyers.

Currently, the prices of lawyers for the South Yorkshire region are 201 + VAT for 1h.

Below is a table from the government website. Everyone can check what are the lawyer’s costs depending on the area in the UK.

stawki za prawników w UK

Sometimes it happens that you enjoy a low price. I wonder if someone told you what it’s due to. Perhaps you talked to a practitioner.

The funniest thing is that you may find that your family will receive your home after your death, but you’ll have to sell it to pay tax. It’s such an extreme and stupid example, but it can exist. So far, most Poles in the UK still rent houses, so they don’t worry about inheritance tax.

Of course, the same applies if someone has a company and children inherit shares, but they won’t have money to pay taxes. Then they will be forced to sell it quickly.

And you know that when someone wants to sell something quickly, there aren’t buyers, unless at a very low price. That is why business trusts are dedicated to such solutions.

I hope you now know what a trust is.

Summary of the entry

It’s worth taking an interest in the Trusts before you decide to die, because it’s a very expensive undertaking. The problem is that it isn’t known until the end when it’ll happen, so I recommend to take interest in the subject and consult with a good financial advisor.

Trusts are very good for life insurance.

Trust protects your family, thanks to which you’ll receive money from the policy within a few weeks (good company) and the money from the Trust is exempt from inheritance tax.

NOTE: I present private opinions and I am not responsible for the readers’ decisions. I always try to present current information but may no longer be up to date. Therefore, before making a decision, please verify them and consult a licensed financial adviser. 

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