Could be the best option for you
With the growth of multiple relationships and blended families many couples are having to consider ways to ringfence assets and protect inheritances. One option is to establish parallel trusts – so you each have your own trust for your share of the assets.
A Typical Parallel Trust Structure
Trustees: David, Sally & Independant Trustee
Beneficiaries: David, Sally and only David's children, grandchildren and direct family members
Naming new trustees or beneficiaries: David decides, not Sally
Trustee: Sally, David, and Independant Trustee
Beneficiaries: Sally, David, and only Sally's Children, Grandchildren and direct family members
Naming new trustees or beneficiaries: Sally decides, not David
Advantages of parallel trusts
At the start of a new relationship, a couple may already have assets they wish to protect, particularly when one partner brings more assets to the relationship. They may each wish to provide for children from previous relationships.
If the couple buys a property the two trusts can be co-owners in equal shares (or unequal shares, depending on how much they each put in). Each party can arrange financing in a way that suits them.
If either person receives an inheritance, it can be kept in his or her trust. Having parallel trusts can protect against a claim to a half share if there is a separation.
If your parents are willing to change their Wills, your future inheritance can be left to your trust. In most cases it would be unwise for any inherited property to be paid to one trust set up for the two of you.
If an inheritance is put into a single trust and the couple separates later, the trust assets will usually have to be divided equally so that one half of any inheritance will go to each former partner’s trust.
In the event of a separation, the parallel trust structure means most of the available assets are already divided equally between two trusts. Fifty per cent of the sale proceeds of each jointly-owned asset would go to each partner’s trust. Each partner can then simply change his or her trust to remove the other partner as a beneficiary and trustee.
Where one partner dies, the surviving partner may have further children or enter into a new relationship. Parallel trusts ensure that, when one partner dies, the assets owned by the deceased partner’s trust at that time are protected for the benefit of the deceased partner’s children or beneficiaries. The surviving partner can still have the use of the shared assets. The deceased partner’s share of the assets cannot be diverted to third parties. The surviving partner can add more beneficiaries to their trust, such as a new partner or children.
Where couples or partners in a relationship are thinking of transferring assets to trusts there is always the question of who needs to receive independent advice and the extent of that advice. Valuations may be required to ensure that future rights under the Property (Relationships) Act 1976 are not affected. In most cases, dividing assets 50/50 between parallel trusts may avoid expensive valuations, particularly for business assets. Obtaining independent advice is, in most cases, more straightforward and in turn less expensive.
The downside of parallel trusts
There will be some additional cost but having two trusts, rather than one, does not mean double the cost. We believe the advantages to a couple having parallel trusts far outweigh this extra expense.
If you would like to know more about parallel trusts, talk to us about whether they are the best protection for you.