What value of Assets is required to make a Trust Fund viable?

There are many reasons why people establish trusts and we’ll cover some of these for you in upcoming blogs.

But the first thing to say is that you don’t necessarily have to be mega wealthy to set up a trust. A trust can also be a financially viable option for those with a more modest asset portfolio.

And it certainly shouldn’t be inordinately expensive to set one up – despite fears to the contrary.

Naturally, whilst you’d want to have a valid for reason for establishing a trust in the first place, you also need to have a clear understanding of how much the structure is going to cost over a period of time. Obviously, if the cost is going to outweigh the benefits, then there is little point!

Indeed, even with a sizeable pot, fees can often be a major source of contention. If a trust provider is charging prohibitively high fees, this can be a disincentive. So for trustors, it pays to shop around or to take a second opinion, as charges can fluctuate dramatically, not just between providers but also entire jurisdictions.

How much do I need to make a Trust?

Here at Sterling in the Isle of Man, we provide a fair and transparent fee structure which we believe is completely equitable to our clients, providing long-term assurance, clarity and goodwill.

Generally speaking, unless there is an extremely pressing or personal reason for setting up the trust, we would say a good starting point would be when you have combined assets of around £500,000. For a trust holding this level of assets, our start up and annual renewal cost would be £720 (see attached, our Trust Establishment and Management Schedule of Fees).
It’s quite revealing how these fees compare to likely inheritance tax liability.

Although a married couple with an estate of £500,000 would not face any UK IHT – given the combined personal allowance of £650,000 – the same would not be the case for a single person. An individual with assets of £500,000 would be exposed to £70,000 in IHT. Alternatively, if he or she was to establish a trust with Sterling, it would take 97 years to accumulate that amount of IHT in trust fees!

Even for larger estates with assets of £1m (not uncommon), which would leave a couple facing an IHT bill of £140,000 after their personal allowance, given that we charge an annual fee of £1800 for trusts of this size, it would still take them 77 years to accumulate this level of outlay in trust fees (see our IHT calculator) .

So, even for those who wouldn’t consider themselves to be rich, these days just by using the value of UK property in many parts of the country as a yardstick, having half a million pounds’ worth of assets is entirely realistic. In terms of estate and asset protection, this brings the idea of a trust into play for an increasing number of people. You certainly don’t need to have excessive net worth to give it consideration.

Before embarking on this course of action, however, it’s important to understand why you would want to set up a trust structure in the first place. As always, we strongly advise clients to take professional advice. As part of the process, you may benefit from a Foresight Domicile and Tax Health Check, which we can arrange for you in conjunction with your financial advisor. This will give you a clear picture of your net worth.

Nevertheless, if your assets are collectively valued at around £500,000 and upwards, then the economics of a trust formation could be a useful card to have up your sleeve.