Using trusts can help to make sure your financial plans take care of the future

Trusts and what they do If you ve already taken the time to make financial plans for the future, using trusts can help to make sure your carefully laid financial plans unfold the way you want them to. A trust is simply a way to give something away with a certain number of conditions attached. This gift could be a life assurance plan (including an investment bond), money in a building society account, shares or property most things of value. This guide will help you to understand: the benefits of trusts what trusts are why you should consider using trusts how to choose the right trusts, trustees and beneficiaries how to set up a trust. Understanding and choosing the right trust can be a complex subject, but with the help of your adviser, the answers can be more straightforward. We recommend discussing trusts with your adviser as they can help you decide how you can make sure the people you care about get the maximum financial benefit from the plans that you ve made. Please bear in mind you may be charged for any advice received. The information in this booklet has been based on our understanding of current legislation as at January 2016 but tax treatment depends on your individual circumstances and may also change in the future. We ve had to use some legal terms, but where we have, we ve explained them in plain language. 3

Why you should consider using trusts There are three main benefits to using trusts: 1. The right people benefit Would you like the proceeds of your life assurance, pension or investment plan to be paid to whoever you choose or let someone else decide this for you when you ve died? By using a trust you will be leaving enforceable instructions that clearly explain what you want to happen and defines who will benefit from your gift. 2. Speed of payment When you die, the financial value of everything you own i.e. your assets (e.g. the value of your home, all your possessions, savings and investments etc.) are added together and referred to as your estate. This will then be distributed according to your will, if you ve made one. Dying without a will is called dying intestate and not having a will means the intestacy rules will determine how your estate is divided and distributed this may not be who you want to benefit. For more information about this, please speak to your financial adviser. Before anyone can receive anything from your estate, two things have to happen: 1. The person responsible for dividing up your estate will have to apply for a Grant of Probate*. This can often take six months or more. 2. Any inheritance tax (IHT) will have to be paid, often before Probate allows the funds to be released. Your legal representatives, usually your loved ones, have only six months to pay the IHT before paying interest on the amount due. However, if a trust applies to an asset such as your life assurance plan, the proceeds can go directly to the people you ve chosen, without having to wait for the Grant of Probate. This means the proceeds of the trust should be available more quickly and normally in time to pay any IHT as soon as it falls due. When you consider how hard you ve worked all your life to accumulate your wealth, wouldn t it be nice to know that a chunk of it won t be used to pay inheritance tax or be given to people you don t want it to? 4

3. Helping to reduce inheritance tax liability If your estate is worth more than the nil-rate band for inheritance tax when you die,** it s likely your estate or beneficiaries will have to pay IHT. There are a number of ways of reducing your IHT liability or making provisions to pay for it. These include: making gifts providing the funds to pay any IHT liability. This would normally be achieved by using a life assurance plan. We recommend you speak to an adviser who will help you to work out what s best for you, set up the trust correctly and explain the tax position. Please note the tax position depends on your individual circumstances and may also change in the future. Grant of Probate Probate is the legal procedure by which a will is authenticated and confirms the authority of the executors (the individuals who are to deal with the estate and administer the will s contents). The Grant of Probate is a certificate that validates the will and authorises the executors to administer the estate. Letters of Administration are the equivalent to Probate for individuals who die without a will (dying intestate). You could use a trust if: you ve taken out life assurance to help financially protect your family your estate is likely to be worth more than the nil-rate band in the current tax year you have savings or investments you d like to pass on when you die you would like any life assurance, pensions or investment benefits to go to certain people you want the comfort of knowing that the plan benefits will be paid more quickly when you die. *Some of the information in this booklet does not apply in Scotland. For example, the Rules of Intestacy are different. Similarly in Scotland, a Grant of Probate is generally known as a Grant of Confirmation. **Married couples and civil partners each have their own nil-rate band. Where it s not used on first death (normally because everything is left to the surviving spouse/partner which is exempt from IHT), it can be claimed and used on the second death. This could also apply to deceased spouses or civil partners. Your adviser can help determine the IHT implications for you. 5

Your choices the right trust, trustees and beneficiaries Setting up a trust means making a few decisions. As the person setting up the trust you ll need to decide which type of trust to use, who you want to manage the trust (the trustees) and who you want to receive its benefits (the beneficiaries). Apart from choosing trusts based on the amount of flexibility and control you might need, there are also IHT considerations. Ask your adviser to help you decide which trust is best for you. 6

Choosing your trust There are two main types of trust. They are called absolute (or bare) trusts and discretionary trusts. Choosing the right trust for you is a matter of balancing your need for flexibility and control of the asset you re putting in trust with the potential savings in inheritance tax. Absolute trusts Absolute trusts should only be used where you want to make an outright absolute gift, as once you appoint beneficiaries you cannot change them in the future. Most commonly used by parents wanting to create a trust for their children, but a drawback of an absolute trust can be that as soon as children reach age 18 they become absolutely entitled to the trust s assets. An advantage of absolute trusts is that after seven years there is no IHT on the investments held in the trust. However, with this type of trust you cannot make any changes to the trust after it has been set up. Discretionary trusts With discretionary trusts, the trustees decide how much of the trust property the beneficiaries should receive. The beneficiaries are chosen from the wide range listed in the trust document. No beneficiary has an absolute entitlement to benefits unless the trustees decide to provide them. An advantage of this is that it gives you, as one of the trustees, greater control than an absolute trust. However, although the gift held in trust is outside of your estate after seven years, the IHT treatment of discretionary trusts might be less favourable than absolute trusts due to ongoing periodic/exit charges. Please ask your adviser about this. An immediate charge to IHT will arise where a gift to a discretionary trust exceeds the available (after deducting other gifts from the same person to discretionary trusts in the previous seven years) nil-rate band. Income tax and capital gains tax, where applicable, are applied differently on assets held in an absolute trust and a discretionary trust. You should discuss the different taxation treatment with your adviser before deciding which trust is most suitable for you. 7

Choosing your trustees With most trusts you will be one of the trustees this is how you can keep some control over who benefits. However, trustees of a discretionary trust may have the final decision on who benefits from the trust. Whilst you can make some decisions about the trust whilst you are alive, other trustees will often need to be involved it will be their job to pass the benefits of the trust to the right people when you die. By not appointing any additional trustees, this can cause unnecessary delays and complications at the claim stage. As the role of a trustee is an important one, you should consider choosing people who you can rely on to know and carry out your wishes when you die. It s therefore a good idea to choose someone you re in regular contact with and likely to remain so in the future. If any beneficiaries are under 18, the trustees will have to look after the trust s assets on their behalf until they are old enough to receive them. Your trustees should therefore be prepared to take on a potentially long-term commitment. With these responsibilities in mind, people often choose close friends or family to be their trustees. You can also consider appointing (legal) professionals but they may charge a fee for acting as a trustee for you. Whoever you appoint, you should consider choosing all of your trustees wisely. Choosing the beneficiaries For absolute trusts, once you have chosen the beneficiaries you cannot change them. You need to be absolutely sure that the people you choose now will still be those you want to inherit in years to come. Beneficiaries are named at outset on the trust document. For discretionary trusts, you can add or change the beneficiaries. The trust document lists a wide range of potential beneficiaries. Discretionary trusts offer flexibility to change things as you go along, and, with you as a trustee, they can also offer you some control over the trust s assets while you are alive. Take care to: choose which trust is best for you, choose those you wish to inherit (the beneficiaries) but think about the future when doing so, choose your trustees carefully, as their role is important, seek advice. 8

Setting up the trust You ve spoken to your adviser about inheritance tax. And after discussion with your adviser you ve decided which trust is best for you. You ve thought about who you want to be the beneficiaries and about who will act as trustees. Setting up a trust with Zurich can be straightforward. There s no complicated paperwork all you need to do is complete a short form included as part of the trust document. The trust document is drafted for you and contains comprehensive guidance notes, including details on how to complete it. Although you can place most things of value into trust, Zurich s absolute and discretionary trusts have been drafted to use only with Zurich s life assurance, pension and investment plans. Setting up a trust can be as simple as filling in the details of your beneficiaries, trustees and the amount you want to put in trust. Then you and the trustees sign the form and we ll do the rest. Your adviser can help you to do this. They can help make sure the people you care about get the maximum benefit from the arrangements you ve made. Any assets written in a trust go directly to the people you ve chosen as beneficiaries. Using trusts can help to make sure your carefully laid financial plans unfold the way you want them to. 10

Please let us know if you would like a copy of this in large print or braille, or on audiotape or CD. Zurich Assurance Ltd. Registered in England and Wales under company number 02456671. Registered Office: The Grange, Bishops Cleeve, Cheltenham, GL52 8XX PP113320A53 (01/16) RRD