STEP Report Reviews The Social And Economic Benefits Of Trusts

• Published date: 12 October 2021
• Subject Matter: Corporate/Commercial Law, Tax, Inheritance Tax, Income Tax, Capital Gains Tax, Trusts
• Law Firm: RadcliffesLeBrasseur
• Author: Ms Caroline Doyle

Trusts are often misunderstood in the UK with the perception that they are a tool to evade tax and that their use is limited to the highest echelons of society. This reputation is damaging and threatens the continuing existence and use of trusts in the UK. As a result of this public perception, STEP commissioned a report to review the social and economic benefits of trusts. STEP's aim is to 'open the curtains' by addressing common misconceptions and highlighting the positive benefits of trusts. While their report had a worldwide focus, this article will review and summarise the UK perspective.

Use of trusts

The report emphasises that trusts were created to meet the needs of families and that in the modern ages this differentiation between legal and beneficial ownership stemmed from the requirements of the Crusaders in the Middle Ages travelling to battle and their need to ensure that their families were provided for in their absence. The origin of trusts is therefore intrinsically linked to distinction between the concepts of legal and equitable ownership and the moral obligations of the church during this period.

The use of trusts over history evolved from largely holding land to holding cash, shares and securities. This evolution allowed those other than the landed gentry to benefit, demonstrating how trusts have changed with society to become more socially inclusive.

STEP aims to demonstrate that the use of trusts can benefit an individual throughout the course of their life and that their use is much more widespread than public perception would suggest. STEP has outlined this through the following examples.

1. Families and succession planning

At the heart of trusts is the desire to provide for families. Often those creating trusts wish to ensure that funds are maintained for future generations of the family. Settling assets in trust allows them to be ring fenced for this purpose and a key selling point of trusts is the certainty that this provides families.

Trusts created by Wills are especially common and their use can allow the testator the comfort that any minor children would be provided for and that they would not receive potentially large sums of money at a young and impressionable age.

Trusts also allow families to provide for their unique circumstances and their use is more common place as the traditional nuclear family becomes less common. A common use of trusts, especially those created in Wills, is to provide for 'blended' families, where the testator wishes to ensure that their spouse from a later relationship is provided for but that their estate will eventually be held for their children. This use of trust helps to avoid arguments and acrimonious relationships upon the death of a family member.

Until the recent changes in law to allow same sex couples the...