When parents want to set up a trust for their children to inherit, they do so through a trust fund. There are many benefits to this, such as saving Inheritance Tax (IHT) and having more control over where the estate goes and how it is used. The process can be complicated so it is important to consult a professional solicitor to avoid making mistakes.

JMW Solicitors has compiled some of the most serious and common mistakes that parents can fall into when setting up a trust fund, and how you can avoid them by planning and properly protecting assets.

Set up a trust fund

The first mistake that many parents make is to avoid setting up a trust in the first place. A trust fund allows (among other things) IHT mitigation. This tax can significantly reduce the value of your estate.

A trust also provides opportunities for you to control how the assets of the trust are used following its distribution. You can set rules to restrict your children from using their inheritance for certain things. For example, you might want them to invest in a house, so you can instruct the trustees (those managing the trust) to support this. Without a fund, you can not place restrictions on how your estate is used after it is inherited by your children.

Be clear about the goals of the trust

Transferring a large sum of money can bring with it a lot of responsibility. You should ensure that you establish goals and discuss them with your solicitor. This will allow the solicitor to work closely with you to achieve the result you desire from the process.

You could set the trust up so your children receive finances in intervals, or so they receive it as a bulk transfer when they reach a certain age. Each method requires you to manage taxes differently and to do so you should seek the assistance of professional wills, trusts and estate solicitors.

Trust funds can be used to help provide university or college financial aid, pay medical bills or for general financial security. It is essential that you consider these factors when undertaking estate and tax planning.

Direct your insurance towards the right parties

The way that life insurance and death in service benefits are set up can have a huge impact from an IHT and protection perspective.

One way you can ensure that your assets are distributed in the way most beneficial to you and your children is to create a trust so that the payments on your death are protected from IT and sheltered from issues such as divorce or bankruptcy.

Choose the right trustees

Appointing the right individual to facilitate the transfer and managing of your trust is essential to the protection offered by a trust. A trustee should be a professional or individual who you trust to have strong management and organisational skills, and who will act in you and your family's best interests.

A good trustee will follow your directions and understand how to manage the trust. Choosing a bad trustee may result in the process taking longer to organise or being more costly.

When choosing a trustee, you should also consider factors such as their health and age, their distance from you and whether they will be able to carry out the process when it comes time to do so. Trust funds are typically set up well in advance, so you may want to assess whether that chosen trustee will be alive or available to manage the trust appropriately.

Review the trust regularly

Once you have a trust established, you should revisit it at least once a year to ensure that it complies with current tax rules and remains suitable to achieve your objectives. You could do this in a family wealth planning meeting which could be run by you or facilitated by a solicitor.