The best definition of estate planning is planning for the transfer of assets to the next generation(s) in the most tax-efficient way while taking into account the legal obligations to dependents. Both lifetime donations and an inheritance transferring under a will should take into account trusts.
How do trusts function?
A trust is an official
agreement created to manage property on someone else's behalf. The settler is the person who transfers
ownership of the asset. The trustee is
the person who legally owns the asset but does not own a beneficial interest in
it. Beneficiaries are the individuals
that the settler wants to benefit from the assets. The title is held by the
trustees for the benefit of the named beneficiaries. They are not allowed to
benefit from their position as trustees in any way.
Once a trust is created,
the settlor typically loses all rights to the assets, unless they still possess
the revocation power. Inheritance tax planning trusts are
established when the property is held by trustees on trust with the intent to
distribute income or capital for the benefit of specified beneficiaries in the
manner that the trustees, in their sole discretion, think suitable. The beneficiaries can only ask to be taken
into consideration; they cannot insist that distributions be made in their
favour. Due to tax and legal considerations, the beneficiaries have no interest
in the fund. Through an unenforceable letter of desires, the settlor may give
the trustees instructions on how to manage the trust fund.
Transfer your assets
carefully