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Making sure your hard earned wealth goes where you want it to.

The “have your cake and eat it” trust

Gifting to future generations has always been a consideration for parents/grandparents that want to ensure that such things as university fees are covered or money is available to help with the purchase of a home or an apartment.

The downside to gifting money is the loss of control on how that money will be used, the possibility that the person gifting it might need it back and concerns about the recipients not turning out to be worthy of such generosity or the children being too young to have control of significant sums of money. Once gifted, there is no going back, or is there?

A flexible international trust (the “have your cake and eat it” trust) provides the ideal answer to concerns about gifting monies to others.

The trust is ideal for non-UK domiciled individuals that wish to remain a potential beneficiary of the trust. Non-UK domicles will most likely not be British  or British people that have severed all links with the UK.


How does it work?

The person gifting the money is referred to as “the settlor”.

The settlor  will nominate at least two trustees, which can be the settlor and a trusted third party. The settlor will then place the monies under the control of the trustees who will manage the investment (normally with the assistance of an investment adviser).

This money is now deemed to be an asset of the trust and not a personal asset of the settlor.

The settlor will nominate specific beneficiaries, but the trustees will have power to change the beneficiaries should the need arise.

During the life of the settlor, monies can be made available to the beneficiaries as and when needed. Upon the death of the settlor, the trust will pay all funds directly to the beneficiaries. This can be done immediately without any form of probate/notary delays. Such speedy access to inherited funds could make a huge difference to a family at a difficult time.

If the trust does not need to pay regular income to the beneficiaries, then a non-income producing investment wrapper would be the ideal for the trust investments. The trustees will not need to make any regular tax returns, the investments can grow virtually tax-free. All tax is deferred until an income payment is made and “tax deferred, is tax saved”. The tax will be on the recipient of the income, not the settlor.

The funds inside the wrapper can be managed by the trustees themselves or with an appropriately qualified investment adviser. The administration is very simple.

Of course, sometimes situations change and the settlor might decide that the beneficiaries do not need/deserve the trust fund. The settlor might actually need to money back. Such a trust caters for these eventualities and the investments can be passed back to the settlor as a potential beneficiary.

So, the benefactor really can give something away, whilst keeping control of the funds at all times and, if need be, take the money back.


About the Author: Christopher Lean is a consultant at Square Mile Financial Services (http://www.squaremilefs.com ) and an Associate of the Personal Finance Society (Chartered Insurance Institute).


NB. It is important that anyone considering this takes appropriate taxation advice before entering such an arrangement.