Finance

A QUESTION OF TRUST

Andrew Fort B.A. (Econ.) CFPcm Chartered MCSI APFS, Certified and Chartered Financial Planner, Fort Financial Planning

In many of my earlier articles I have spoken about ‘real financial planning’, in particular pointing out that most financial advisers do not perform ‘real financial planning’. What I mean by this is that most people have no idea how much money they need for the rest of their life. They often significantly overstate the amount that they need and end up not enjoying their life is much as they might be able to.

A lifetime cash flow model is a projection, until your assumed date of death, designed to show you how much money you need to fund your desired lifestyle for the rest of your life – some people describe it as knowing ‘your number’. While someone adept at building spreadsheets could build their own limited cash flow forecast, ‘real financial planners’ have specialist software which takes into account many factors such as investment returns and varying rates of inflation.

Almost every person that I have met believes that they do not have enough money for the rest of their life. Some are correct, but believe you me, many are not.

Most people fear running out of money, but if it is not a genuine fear there are many opportunities to be had. Obviously, one of the most important opportunities is to be able to fulfil any dreams that they may have. One aspect to consider is whether to make lifetime gifts to younger generations.

Many people are concerned that making gifts will spoil the child. Some people worry that some of their beneficiaries might be irresponsible and worry that you can’t give to one without giving to the other. They also fear losing control for their investments or how the money is used. Many people might also fear the daughter or son-in-law from hell or simply worry about the prospect of a future divorce.

All of these issues can sometimes be solved by use of a trust. In simple terms a trust makes sure that right money or property reaches the right person, at the right time. A trust is a legal entity that is distinct and separate from the people who set it up and the people who will later benefit from it.

One of the main benefits of a trust is to protect assets. It means that money for children can be passed on to them at a point when it is most appropriate. It means that money can be passed over to them in dribs and drabs, if that is considered appropriate. It means that your son or daughter and grandchildren can be beneficiaries rather than your in-law, protecting money in the event of a divorce. It also means that you might save inheritance tax.

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