Dental Tribune UK Edition, October 25-3, 2010, No.26 Vol.4

H ow attractive are the fol- lowing concepts? Provid- ing financial security for your family and future genera- tions? Securing pension arrange- ments? Investing funds? Leaving assets for worthy causes? Protect- ing your assets from third par- ties? These are just some of the situations where a modern-day trust is applied. All very appeal- ing, no doubt, but what on earth is a ‘trust’ and how can this ap- parently mysterious device be of practical benefit? So, what is a ‘trust’? A trust best describes the situation where one person (known as the ‘Trus- tee’) is given an asset by someone else (the ‘Settlor’) for that per- son to hold ‘on trust’, that is for the benefit of a third person (the ‘Beneficiary’), usually subject to various terms. The relationship between the Trustee and the Ben- eficiary is said to be a ‘Trust’ and is governed by numerous rules and obligations. Trusts in the modern world Trusts have a very broad range of application in domestic life, and in the world of commerce. Some typical illustrations follow. Wealth Preservation Tax, we can be comforted, will remain a constant in ever changing times. The Trust can be used to plan to reduce or even avoid taxes charged on benefits received and on formal ownership of property. All of us would prefer to avoid unnecessary income tax, capi- tal gains tax and inheritance tax both now and in the future. High- er-rate taxpayers can save subse- quent tax by transferring assets into a trust. Income tax earned by the capital assets will disappear because the asset will have been given away. Capital taxes will be avoided if the asset’s capital value increases as the asset will belong to the trust. Inheritance tax pay- able on death will be avoided as the asset will not form part of the taxpayer’s estate. Some examples: Pay into a Trust an amount up to the prevailing nil rate band (currently £325,000) every seven years without any lifetime in- heritance tax becoming due on that transfer. For married cou- ples or civil partners the limit is £650,000. Create growth in asset value outside your estate. For exam- ple, create a Trust with a mod- est amount of cash or take out a large loan to acquire capital assets. Over time the loan is re- paid and the growth in value of the assets remains in the Trust, not in the Settlor’s estate. Trans- fer into a Trust assets having a low value but potential for large growth. The value transferred from the Settlor’s estate is small and all future growth occurs out- side the estate. Leaving business property on death to a spouse wastes tax re- lief. A gift to a spouse or civil part- ner is exempt. Business property qualifying for 100 per cent relief should be given to the lower gen- erations or to appropriate Trusts. This overcomes the problem that such property, if left to the surviv- ing spouse, may become an in- vestment rather than a trading as- set, losing entitlement to business property relief on the spouse’s death. If the spouse may need the business assets, place them into a ‘wait-and-see’ discretion- ary Trust and, if needed, distrib- ute to the surviving spouse after the first spouse’s death. Leave a legacy to one or more pilot Trusts creating a nil rate band for inher- Principles of trusts We’ve all heard of ‘trusts’ in relation to our finances, but what are they and how can they be of benefit to us? Edward Stanley explains October 25-31, 201018 Money Matters United Kingdom Edition Pearl Dental Software for PRIVATE Practices See a demonstration at www.bhasoftware.com/pearl www.bhasoftware.com tel. 0800 027 2406