Trusts

The Basics

The purpose of a Trust is to create a separate legal identity. This can then be used to contain and manage different assets, such as investments and property.

A Trust can be used to:

  • Leave a legacy – A Trust can be used to ensure that your assets are not squandered by your beneficiaries. For example, you can ask the Trustees to only pay money out to a beneficiary for limited reasons, such as education or a house purchase
  • Provide for minors or disabled dependants – A Trust can be an effective way to ensure your dependants are looked after when you pass away
  • Mitigate Inheritance Tax – Any transfer into a Trust is normally treated as a gift for Inheritance Tax purposes. This gift may then allow your estate to mitigate or avoid Inheritance Tax on your demise

 

Parties to the Trust

There are three main parties involved in most Trusts. These are:

  • Settlor – this is the person who makes the initial gift
  • Trustees – these are the legal owners of the Trust assets. They are responsible for managing the Trust assets and to make any distributions as required
  • Beneficiaries – these are the people who will ultimately benefit from the Trust assets. They might receive only income, only capital or a mixture of both

Taxation

A Trust can potentially be subject to many different taxes, including Income Tax and Capital Gains Tax. The type and amount of tax paid will depend on the underlying assets in the Trust.

We always recommend seeking specialist advice to discuss the taxation element of any Trusts, as this can be a particularly complex area.

Common Types of Trust

Absolute Trust
Under this type of Trust the beneficiary has an absolute right to the Trust assets – this means they are likely to receive any income generated by the Trust and they will eventually receive the capital on a fixed date or after an event (e.g. when the settlor dies or when the beneficiary reaches age 25).

Discretionary Trust
Under this type of Trust no-one has a right to the Trust assets – the assets are paid out at the discretion of the Trustees. The settlor can tell the Trustees where they would like the Trust assets to be paid out to but the Trustees are not bound to follow the settlor’s wishes.

Will Trust
As the name suggests, this is a Trust which is set up within a Will document. This means it does not come into effect until after death. Normally, any assets named in the Will are paid out to the relevant beneficiary, whereas any assets named in the Will Trust will be paid to the Will Trust itself.

There are many other types of Trust available, some of which are a variant of the three named above.

How we can help

One of our advisers can recommend whether or not a Trust is suitable for your needs and circumstances. After this your adviser will help you select a suitable solicitor to draft the Trust document and then provide guidance while the Trust is created.

Finally, when the Trust is ready, your adviser can help you manage the underlying Trust investments. This will involve assessing the purpose of the Trust, the relevant taxation elements and the previous investment experience of your chosen Trustees.

Find out more

To book a free initial meeting with one of our advisers please call 01642 477758 or visit our Contact page.