Understanding the essentials of banking for trusts
Graeme Morris, Banking Director from Hampden & Co, outlines how banking for trusts can be easily dealt with when managed with a little care.
When considering how best to manage their assets, many people place their faith in a trust. Even if you’ve never been directly involved in a trust yourself, you probably know someone who has or have heard them being talked about. But what exactly is a trust and when can it be a useful part of organising your financial affairs?
Essentially, a trust is a way of managing assets, whether in the form of property, cash, investments or even insurance policies. Trusts can be extremely useful in a range of circumstances, but the reasons for using them essentially fall into three main categories: protection; control and taxation.
There are usually three specific parties involved in a trust: the settlor who creates the trust, the trustee who manages it according to the settlor’s wishes – which are set out in a Trust Deed - and the beneficiary who ultimately benefits from the assets (it’s common for there to be multiple trustees and beneficiaries). Once assets, such as cash, investments or property, go into a trust, the settlor relinquishes control of them and they become the responsibility of the trustees.
A useful tool
A key feature of a trust is that they allow specific conditions to be put in place in terms of how the assets are used. This can make them a very effective way of managing the process of passing money from one generation to another. A typical example would be a child or grandchild being restricted from accessing assets left to them by their parents or grandparents until they reach a certain age, or until other criteria are met. Of course, although it’s most commonly a child or grandchild who is the beneficiary, it could be anyone.
They are also a useful tool for helping with inheritance tax (IHT) planning: as property values continue to rise, more and more people are finding themselves incurring IHT simply because of the value of the family home. The current IHT limit per individual is £325,000, with anything above this being liable for IHT. Putting a property – or other assets - into a trust removes it from the settlor’s estate, potentially lowering the IHT liability.
Banking for trusts
While it used to be common for bankers to act as trustees, nowadays a bank’s role usually involves providing the platform required for the trust’s banking needs. At Hampden & Co, as a private bank that works closely with clients whose circumstances often have some complexity, and that maintains relationships with other professionals such as accountants and solicitors, we are often approached to provide trust banking services which other banks lack either the necessary expertise or the appetite to provide.
In the main, banking for trusts tends to be a little more complicated than personal banking. Even for a straightforward vanilla current account, the fact that there may be multiple trustees living in different locations makes administrating a trust account more complicated; if the trust is looking for loan facilities then further additional focus is required, as we complete the relevant due diligence.
Not just banking
Where I have worked with clients to provide banking for a trust it is frequently in emotionally-charged situations such as the management of a will after a bereavement. Co-operating with a client’s solicitors, accountants and other advisers to create or administer trusts swiftly and sensitively provides a level of support that is appreciated, and goes above and beyond what many have to expect from a bank.
If you want to learn more about how Hampden & Co can help with trusts please get in touch.
About the Author
Graeme Morris joined Hampden and Co in June 2016 as a Banking Director, working with clients across Scotland. Graeme is a highly experienced and qualified banker having previously worked at Clydesdale Bank Private and Adam & Co.
About Hampden & Co
Hampden & Co is an independent private bank, established by a team of experienced bankers who understand that many successful professionals value a very personal banking service. The bank offers a discreet, high-quality service based on developing a detailed understanding of their clients through close personal relationships, and frequently works alongside clients’ broader advisor teams.