Following the administration of McClure Solicitors in 2021, it has recently been reported by various news outlets that former clients of McClure Solicitors are continuing to face a legal nightmare. Since its collapse, former clients of the firm are now faced with new and unexpected bills, with some even struggling to sell late family member’s property as a result of the Trusts not being set up correctly from the outset.
In this insight, we explain why Trusts can, when correctly constructed, be extremely useful legal tools. It also addresses misconceptions and key points to note.
What is a Trust?
A Trust is, in essence, when a settlor (the creator of the Trust) transfers legal ownership in an asset to their appointed Trustees who have a duty to manage the asset for the benefit of the settlor’s chosen beneficiaries.
For example, a settlor (A) transfers £10,000 into a Trust to their chosen Trustees (B). B is now the legal owner of the £10,000 as opposed to A. B therefore has a duty to manage the £10,000 for the benefit of A’s nominated beneficiary/beneficiaries (C). This could involve, for example, B looking after the £10,000 until C attains a certain age.
Why set up a Trust?
Trusts are particularly useful in cases of minor beneficiaries where they are deemed too young by the settlor to manage their affairs. A Trust may also be useful in situations where an individual is unable to manage their affairs due to being incapacitated. Their family can create a Trust to ensure that they are provided for should anything happen to them.
Trusts are commonly established to protect and control family assets. However, it is important that accurate legal advice is provided, as there are complexities and misconceptions around this area of law. It is a common belief that simply transferring your home into a Trust will avoid it being considered on assessment for care home fees. This is not the case – you should seek legal advice to ensure the trust is not what is referred to as a ‘sham Trust’.
Appointing professional Trustees
Clients often seek to appoint professional trustees, such as solicitors. There are many advantages to this, such as avoiding conflict between families, their expertise, and professional trustees will take an impartial view.
It is important to understand what happens should that Trustee die, or resign/retire from their job. In this case, a Deed of Appointment and Retirement should be drawn up. The existing Trustee will sign the deed, appointing a new Trustee to take over their role. The new Trustee will also sign the deed to confirm their appointment. However, it is important to note that it is not essential to appoint a professional Trustee and, in some cases, it may not be appropriate. In any event, the appointment of a professional Trustee should be regularly reviewed.
HMRC
Trusts can attract tax liabilities such as, but not limited to:
- Inheritance Tax;
- Capital Gains Tax;
- Income Tax; and
- Stamp Duty Land Tax.
Prior to 2020, HMRC only required Trusts with a UK tax liability to be registered on the Trust Register. However, they now require most UK express trusts to be registered, whether they attract a tax liability or not. If you are a Trustee, you should check to see if you need to action registration of the Trust with HMRC. You should also ensure that the details of the Trust are kept up to date on the Trust Register.
How can we help?
If you are thinking about setting up a Trust, registering a Trust, or you simply want advice in connection with an existing Trust, please get in touch with our Private Client team by telephone on 0191 384 2441.
