1. Panamania
Written by Miranda Marshall – Director at Hayes + Storr
Trusts have received all sorts of bad press over the last few weeks. They have become emblematic of underhand
arrangements designed to deprive HM Treasury of their dues by those more than able to pay.
Let us examine some of the common misunderstandings.
• Trusts are only for the wealthy: Wrong.
• Trusts are a way of concealing the true ownership: Ah well, there is more than a grain of truth in this; but the
purpose of setting up a trust is often primarily protective and is usually with the best intentions.
• Trusts are for avoiding tax: Generally, this is not the case. Trusts have their own tax system which, put simply,
often taxes them as severely as the very highest earners. If the income is paid out to beneficiaries, then usually
they can claim back that higher rate tax so the income they receive is taxed at the same level as their own
income.
What is certain is that trusts are complicated and the law behind them is often misunderstood or poorly grasped, including
by financial journalists eager for a quick headline.
So, why create a trust, if not for nefarious reasons?
The best and most frequent reason is to leave assets, often by Will on death, to children, the young or financially-
immature. This way the funds can be used to help with their upbringing or education, at the discretion of those with their
best interests at heart. Often, the funds are held back until they reach not just 18 or 21 but more often 25. I have seen
‘vesting ages’ of as late as 30, where the parent or grandparent fears for the child and/or there is much growing up to be
done. In the meantime, the trustees can make payments to or for the benefit of the eventual recipient.
Indeed, trusts can be a way of continuing to exercise control ‘from the grave’; but usually with kind intentions.
Trusts are also a way of making gifts to those who are vulnerable so as to be able to drip-feed funds to them throughout
their life without making them ineligible for state benefits.
Trusts can be managed so that beneficiaries with drink, drug or other difficulties, which it is hoped they will in time
overcome, can have the funds paid to them when they will make better use of them.
The main use of trusts in tax planning is to pass assets on, without any reservation of benefit by the giver, without losing
control and without seeing the funds dissipated or otherwise misused. This means that the gift can be made sooner than
otherwise and it is more likely therefore to pass tax free.
Trusts arose as a legal concept when the Crusaders left their castles to others to look after whilst they went off to the Holy
Land and in case they didn’t come back. Trusts have an honourable English legal tradition and must continue to do so.
“This article aims to supply general information, but it is not intended to constitute advice. Every effort is made to ensure that the law
referred to is correct at the date of publication and to avoid any statement which may mislead. However no duty of care is assumed to
any person and no liability is accepted for any omission or inaccuracy. Always seek our specific advice”.
If you require advice on this matter please contact Miranda on 01328 710210. If you require advice on
any other legal matter please telephone our Wells office on 01328 710210 or email law.wells@hayes-
storr.com.
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