Ensure your children, not their partners, keep their inheritances.

You’ve spent a lifetime building your wealth and carving out a piece of the world to call your own. Now, as you look to the future, you’re probably considering how best to ensure that your hard-earned legacy lands safely in your children’s hands.

Amid concerns about inheritance possibly ending up in the wrong hands due to life’s unpredictable circumstances – like a breakup or divorce – a trust, set up correctly, is an invaluable tool.

Trusts allow you to map out exactly how your wealth will be distributed, putting you in control. Crucially, they also help protect your child’s inheritance from being snatched away by creditors or ending up on the wrong side of a settlement after a relationship breakdown.

Setting up a trust

Setting up a trust correctly is a blend of meticulous planning, sound legal advice, and a keen understanding of its long-term implications. It’s a task that demands diligence and precision. A properly established trust can guarantee that your assets are distributed according to your wishes, avoiding any potential bumps down the road. However, if a trust is not set up correctly, it could lead to an entangled web of legal disputes, tax complications, and it might fail to protect your children’s inheritance as you had intended.

When trusts go wrong

This is a case from a client of mine demonstrating the importance of a well-structured trust.

A successful entrepreneur, let’s call him Mr. Smith, left a significant inheritance to his only daughter, let’s call her Sophia. Sophia, who was married at the time, received the inheritance directly. A few years later, her marriage ended in a divorce, and part of her inheritance was classified as marital assets. This portion was subject to division in the settlement, greatly diminishing what Sophia originally received. If Mr. Smith had set up a trust properly for Sophia’s benefit, her inheritance would have been shielded from such claims.

Trust tax rate changes in budget 2023

We note, that while not directly related to ensuring trust assets are treated as intended, it is important to point out that in May 2023, the government announced a change in the budget that directly affects trusts. Come 1st April 2024, the trust tax rate will leap from 33% to 39%. This increase highlights the importance of getting professional advice when setting up a trust to navigate these financial changes.

Trusts can be tricky to establish, but they’re undeniably beneficial when set up correctly. They’re essential to your financial portfolio to secure your children’s inheritance. As such, always seek expert advice to ensure your trust is correctly structured and considers all relevant laws and tax implications. By taking this extra step, you can rest easy knowing that no matter what tomorrow brings, your legacy will be safe and sound in the hands of those you cherish the most. If you’d like to discuss it, please contact me.