‘Ring-fencing’ assets to protect family wealth for future generations

Trusts are used to protect family wealth for future generations, reducing the inter-generational flow of Inheritance Tax and ensuring bloodline protection for your estate from outside claims. The way in which assets held within Trusts are treated for Inheritance Tax purposes depends on whether the choice of beneficiaries is fixed or discretionary.

The most popular types of Trust commonly used for Inheritance Tax planning can usually be written on either an ‘absolute’ or a ‘discretionary’ basis and the taxation treatment is very different for each.

A Trust is a fiduciary arrangement that allows a third-party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Once the Trust has been created, a person can use it to ‘ring-fence’ assets.

Trusts terms:

  • Settlor – the person setting up the Trust.
  • Trustees – the people tasked with looking after the Trust and paying out its assets.
  • Beneficiaries – the people who benefit from the assets held in Trust.