What specifically, that I posted, was incorrect? Am genuinely interested as I'm by no means claiming to be an expert here however I'm not sure what in the rest of your post you were trying to correct in my post which was an objection in principle to a trust being able to perpetually hold and grow assets for the benefit of a single individual and subsequently his heirs.
It's in the quote referred to by the post I quoted. For instance
yet if assets are allowed to perpetually grow in such a trust structure and only the income from that trust taxed then it is blatantly circumventing part of the purpose of the tax in the first place
Why do we need the ability to set up trusts to benefit one single individual - what benefit is there to the rest of society to allow these?
Two things in there, one factual, one more value judgement.
The factual bit is about the way trusts are taxed. I've posted a couple of times about it, in vague terms, because the detail is horribly complicated and I'm not a tax or trust lawyer/accountant. Also, much of my practical experience isn't under UK law, though some is.
But there are a variety of different types of trust. One would be where the contents of the trust become the absolute property of the beneficiaries on some event, like reaching a given age, or attaining some target. Another is where the capital of the trust are preserved and managed, while the trust pays out to qualifying people either on defined timings, or trigger events like on-going education.
The exact implications of tax on trusts depends on a series of factors like this, including when the trust was established, and even variously on a given trust based on when specific assets went into it. IIRC, one cut-off date in UK law is 2006, and another is 1974. I beat the first one, but not the '74 one.
All this, and much more, makes it hard to be categoric about taxation on trusts,, and the IHT implications because you can trigger IHT liability on putting assets into trust, just as you can under gift/taper relief rules by giving things away. But it is certainly the case that putting assets into trusts can trigger a 20% charge. So, if I add property to a trust, the government may well get 20% of the value (at date of entering trust).
Then, in many cases, there's the "10 year" charge, whereby every 10 years, for many UK trusts, a relatively modest percentage gets charged, which generally would be expected to be paid from trust assets, or accrued income. That implies another set of periodic valuations of the market value of assets to work out what to pay.
There's more, but I'm sure you get the point. Trusts aren't quite as effective as an IHT shield as many seem to think, and tax on trusts is not as monolithic as it might superficially appear either. The above is expensive to run, and why anything beyond simple trusts is a wealthy person's game. It's not just about shielding large assets or inheritances. It's because fees and charges are very high that it has to be a substantial amount to be worth it.
As for the value judgement, one reason for trusts is to ensure funds are dedicated to a specific purpose, and not just for one person, though it could be.
A hypothetical example. Suppose I have enough money to put a large sum aside in trust whose purpose is education. In fact, I did, but the sum I'm using here is hypothetical. Suppose, £5m. Also, suppose my remaining estate is in excess of the IHT threshold, so allowances are used by the rest of the estate before we get to that hypothetical £5m.
Option 1. The money goes into trust to pay for grandkid's education, maybe Eton, 8Oxbridge, medical school, etc, but only pays out for educational purposes according to ctiteria defined by the trust. Society ends up with one well-educated doctor and, given the trust funding, has paid little or nothing for it.
Option 2. It goes into my estate instead, and my kids spend it on Ferraris and casinos, after IHT is deducted, if I haven't managed some other way of avoiding it.
Option 3. I spend it on Ferraris and casinos before I die.
Putting the £5m into a trust locks that money into being used for whatever the defined purpose of the trust is.
Now suppose I come up with a further £5m, and set up a similar fund but one that funds a similar education but instead of being my heirs, picks an equal number of high-achieving but poor kids from socially deprived backgrounds. Now, a kid that otherwise might waste that high achievement also gets highly educated.
My point is that trusts aren't just about 'protecting' wealth. There are people with money prepared to use some of it for the good of others. Some are educational trusts. Prince Charles' Prince's Trust also comes to mind and the Duke of Westminster did some similar works.
The trust mechanism, like a gun, is a tool and the benefit or otherwise to society depends almost entirely on how it's used. I would argue that sensible values suggest if money goes into generic Treasury funds via IHT, it will get used with the general inefficiency of career politicians, but if it's locked into a dedicated trust, then the benefit is highly focussed, and restricted by the trust deeds. It might be education, as per the above example, or a cancer hospice, or for really big trusts, something far more generic like the Gates foundation.
And finally, on a more selfish note, if inheritance is protected by trust, it prevents spend-thrift descendents burning through the principle in Ferraris and casinos. It can be used to generate sufficient income to make sure future generations never want for a decent lifestyle, without enabling the profligate or those lacking in self-discipline to self-destruct by over-indulgence, or by lazing around instead of doing something useful.
I'm lucky with my kids. They're all hard-working. And, by the way, self-sufficient. But there's no guarantee their kids, or grandkids, will be. Trusts are a way of protecting that inheritance against profligacy by beneficiaries and even protecting beneficiaries against their own potentual or known weaknesses.I have a couple of friends that had to protect their own kids from inhetiting the means to self-destruct.
