How much does a living trust cost?
A Living trust may cost anywhere from £1,500 to more than £5,000 depending on the structure and need.
One should be very careful in using these instruments and explore alternatives before proceeding.
Moreover, it is necessary to register such trusts by the new Trust Registration Service, an administrative cost which should be factored in.
What is a Living Trust?
The overriding function of any trust is to separate legal and beneficial ownership.
In the case of a ‘living trust’, a settlor – acting whilst alive, assigns or transfers property into the legal ownership of a trustee(s) to who is charged with managing the property in the interests of beneficiaries. The arrangement is called a ‘living trust’ largely to differentiate it from will trusts which do not come into existence until the death of the settlor.
Trustees have a fiduciary duty to the beneficiaries of a trust and must act in their interests. It’s worth noting that beneficiaries may act as their own trustees (often together with others).
What does a living trust do?
In the context of estate planning, living trusts have a number of potential benefits, however these should be considered in the context of risks and costs. Specifically, I would assert that their potential benefits ought to be weighed pragmatically against ‘will based trusts’.
Non exhaustively. Setting a trust up in life, as opposed to doing so via a will, means that it exists as soon as assets are transferred. One doesn’t have to wait until probate is complete in order for the trust to come into existence (as one would in the case of a will-based trust). This may have the effect of reducing the burden of probate altogether and potentially saving costs.
Notwithstanding potential reductions in probate burden, firms may charge £4,000 or more to set up a trust, more than offsetting future savings. Moreover, ongoing registration demands may result in fairly pernicious ongoing accountancy bills.
Protection from local authority levied, long term care fees, is a benefit occasionally cited by those promoting living trusts. Such claims ought to be treated with caution. The law is ‘wise’ to this approach. If a trust’s reason for existence is primarily to deprive the authority of assets it can be unwound. There is a common misconception that there is a time limit on how far authorities may go back in time to do this. There is not. All that said, if the trust is genuinely set up for another reason its presence may at least act as a ‘line of defence’ potentially delaying or even preventing absorption by care fees.
Tax planning.
Passing assets into a trust may have the effect of removing them from one’s estate for inheritance tax purposes (after a certain period of time has passed). One should not attempt to do this with a home, however, as this may well be considered ‘reservation of benefit’ for tax purposes (resulting in the trust’s being unwound). This approach may also prove beneficial to future generations since assets need not enter their estate if they are named on a living trust. Advice must be sought as trusts themselves are taxed and it’s possible for inheritance tax to become payable in life under certain circumstances.
Conclusion
Living trusts have, in my view, more ‘cons’ than ‘pros’ and I spend too much time trying to help those who have put assets in such trusts and lost documents or seen trustees die to be a big fan. For my part, I think will based trusts far more reliable for protection of assets from care fees for instance.
That said, living trusts have a place in tax planning and intergenerational estate planning. Serious analysis should be undertaken, however, and particular caution is needed around the family home. If you or someone you know has been approached by a firm offering to place your property into trust, in life, please do get in touch via www.evansonwep.co.uk. We’re always happy to discuss matters without obligation.