Administration of trusts solicitors

Frequently Asked Questions

• What is a trust?

  In a nutshell, a trust exists where an asset is held legally by one or more person(s) (called 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 it for the beneficiary.

  There are a number of different types of trust and reasons for setting up a trust.

• What are trusts used for?

  Trusts are often used for tax planning reasons, as well as to protect assets held for young people or vulnerable adults.

  Trusts can also protect assets that are to be used to help someone who is in receipt of means-tested benefits, without affecting their right 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 that asset for themselves.

  Trusts are an important part of estate planning and are often included in wills, especially when second marriages/ civil partnerships or blended families are involved.

• What types of trust are there?

  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 can be briefly summarised as;

  Discretionary Trusts

  A discretionary trust gives 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 the trustees deciding whether to benefit them and to what extent, this type of trust is good at protecting a beneficiary who might make bad decisions for themselves.    This type of trust is also suitable if you are unsure exactly who you might want to benefit from the trust or where you wish to allow maximum flexibility for tax planning reasons.  

  Disabled Persons Trusts

  These are based upon a discretionary trust model as set out above but are specifically designed to benefit the disabled person.   Since this trusts give the trustees discretion as to when to benefit the disabled person rather than giving the disabled person an absolute right to the trust assets, the disabled person’s entitlement to means-tested benefits is preserved. 

  Life Interest Trusts

  These grant a beneficiary the right to income from trust assets (or the right to use the trust asset) but do not grant them a right to the capital value of the asset, although the trustees are commonly given a discretion to forward capital to the beneficiary if they consider it necessary.  These types of trust are often seen in wills where there is a second marriage or partnership and a person wishes to provide for their spouse/ partner whilst ultimately ensuring that the asset passes to their children (often the family home).

  Bare Trusts

  These are simple trusts, where a person holds an asset on behalf of another person until that person reaches the age of 18 and who can then take over management of the asset themselves.  The beneficiaries of these trusts have an absolute right to the trust asset which passes to them as soon as they reach the required age.  This type of trust is most commonly used to hold assets (often property) for minors until they come of age. 

• How do I set 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 carefully about who will be the trustees, how much control you want them to have and who you wish to benefit from the trust including when and how much they should benefit.  Trusts carry tax consequences and it is important that you take careful advice about the tax consequences before you set up a trust.    Whilst trusts can be a very useful estate planning tool, if they are not set up carefully, they can have unintended tax consequences.

  Once you have decided to set up a trust and you have identified your trustees, your beneficiaries and what type of trust you require, you will need to identify what assets or funds you will transfer to the trust at the outset (the ‘initial fund’).  Normally, trusts are set up so that more assets can be added in the future (although, again, professional advice should always be sought before adding further trust assets due to the potential for unforeseen tax consequences).

  A trust is set up by executing a trust deed and transferring the initial fund to the trustees.   Ideally, the initial fund will be transferred to the trustees at the same time as the trust deed is signed.  How assets are effectively transferred will depend upon the nature of the assets and it is recommended that professional assistance is sought.

   

• What is trust registration and do I need to register my trust?

  For more information on trust registration and the trust registration scheme please click here