What is a trust?
In a nutshell a trust exists where an asset is held legally by one or more person (the trustee or trustees), for the benefit of someone else (the beneficiary or beneficiaries). The trustee cannot benefit from that asset themselves but they are responsible for looking after that asset.
There are a number of different types of trust and reasons for setting up a trust.
What are trusts used for?
Trusts are often set up for tax planning reasons, as well as to protect assets held for young children.
Trusts can also protect assets that are to be used to help someone who is in receipt of means-tested benefits, without affecting their rights to those benefits. They can also provide protection for someone who you would like to benefit from an asset, but who for whatever reason may not be able to deal with the management of the asset themselves.
Trusts are a very important part of estate planning and are often included in wills, especially when second marriages or blended families are involved.
Setting up a Trust
There are a lot of factors to consider when setting up a trust and it is important to take specialist advice. You will need to think about who should be the trustees, how much control you want the trustees to have, who should benefit from the trust and when and you will also need to take careful advice about the tax consequences of your trust. Trusts can be a very useful estate planning and tax planning tool but if they are not set up carefully, they can have unintended tax consequences.
We can help discuss your needs and decide if a trust and what sort of trust might be right for you. We will often work alongside other experts such as tax accountants and financial planners to make sure that your estate and tax planning is properly coordinated to best benefit you and your family and loved ones.
Depending on the type of trust you have set up, there will be an ongoing responsibility to look after and administer that trust.
We are also very happy to help with the administration of a trust, both in advising trustees as to their duties and preparing documents to record trustee decisions and any changes of trustees. We can also advise on any specific problems that a trustee or a beneficiary may have come across during running of the trust, or help with any disputes that may have arisen. We will work alongside accountants and other experts where appropriate to make sure that the trust is run tax efficiently and to the maximum benefit of the beneficiaries.
The majority of trusts now also have to be registered online with the Inland Revenue’s Trust Registration Service and we can help you with the registration of a trust, as well as help you keep the trust details up to date as required by law.
What are the different types of trust?
If you are thinking about trusts, you need to be aware of the different types of trust which exist so that the right trust is set up for you and those you wish to benefit.
Trusts can be divided into several broad types. These include :-
These give your trustees discretion to benefit a defined group of beneficiaries. The power to add beneficiaries to this group is often included in the trust. As a beneficiary cannot benefit from the trust without a decision from the trustees, this type of trust is good at protecting a beneficiary who might make bad decisions themselves. This type of trust is also suitable when you are unsure exactly who you might want to benefit from the trust assets, or where you want to allow maximum flexibility for tax planning reasons.
Disabled Persons Trusts
These are often discretionary trusts as set out above. They give the trustees the discretion to benefit the disabled person, rather than give the disabled person a right to benefit, so as to preserve the disabled person’s right to means-tested benefits.
Life Interest Trusts
These grant a beneficiary the right to the income from trust assets (or the right to use them) but do not grant them a right to the capital, although the trustees often have the discretion to forward capital to them if they think it is necessary. These types of trusts are often seen in wills where there has been a second marriage and a person wants to provide for their spouse, but also wants to make sure that their assets ultimately pass to their children.
These are often simple trusts, where a person holds and asset on behalf of another until that person reaches the age of 18 (or another specified age) and who can then take over the management of the asset themselves. This type of trust is often used to hold assets for minors until them come of age.
Trusts for Property Ownership
Wherever more than one person owns a property, they will hold the legal title to that property on a trust for themselves (and potentially for others not named as legal owners on the title deeds)
If you own a property with another person you will need to think about how you wish to own the property and what shares you should each have.
For further information visit our Declarations of Trust for jointly owned property page https://www.maitlandwalker.com/blog/buying-a-property-with-someone-else-have-you-considered-a-declaration-of-trust/
For further information and to discuss trusts please contact us on:
t. 01643 707 777 t. 01823 745 777