With the upcoming changes in the form of the Trusts Act 2019, which comes into force in January 2021, many people are considering why they set up a trust to start with and whether their trust is still relevant to their circumstances.

The reasons people set up trusts are generally:

• Creditor protection for people in business;
• Protection for children who may not be able to manage money;
• Estate planning reasons;
• Relationship reasons; and
• Historically, for rest home subsidy reasons.

The laws around rest home subsidies and indeed relationship property have changed a lot over the years and many people will find the benefits they thought their trust gave them are no longer relevant.  Equally for many people who used to be in business but are now retired (for example) leading very low-risk lives, a trust is probably no longer needed for them.

As part of winding up your trust your lawyer will need to transfer any assets held by the trust into your personal names.  This will likely be done as a ‘distribution’ to yourselves, assuming you are beneficiaries of the trust. 

When transferring land/property as part of a wind up/distribution process, your ownership of the property effectively starts again, and therefore there can be some tax consequences if you intend to transfer/sell the property again within five years after transferring it to yourself personally as a beneficiary of a trust.  Accordingly it is important that you seek legal advice before deciding to transfer/sell the property. 

There may be other tax considerations to take advice about, as your trust may also give you some tax benefits if you currently obtain income from it.

It is therefore important when winding up your trust to take both legal and tax advice, depending on the assets that your trust owns, before proceeding.

Claire Tyler