What is a Trust?

Trusts can be a difficult area to get one’s head round, however they are a legal arrangement whereby Person A (called the Settlor) gives assets to Person B (called the Trustee) to look after for the benefit of Person C (called the Beneficiary). This is ‘Trusts’ at its simplest.

Who are the parties to a Trust?

There are usually the following parties:

  • The Settlor, who decides to place money into the Trust;
  • The Beneficiary, who enjoys the benefit of the assets placed in the Trust;
  • The Trustee, who manages the Trust and distributes the Trust’s assets to the Beneficiary.

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    How many types of Trust are there?

    There are lots of types of Trusts, including:

    • Discretionary Trusts;
    • Bare Trusts (or Absolute Trusts);
    • Interest-In Possession Trusts;
    • Will Trusts; and
    • Statutory Trusts, which include Bereaved Minor’s trusts and 18-25 Trusts. 

    What is a Bare Trust?

    A Bare Trust, also known as an Absolute Trust, is the simplest form of Trust, where a Beneficiary, provided he has reached 18 years of age,  gains an immediate right to the Trust’s assets. The person creating the Bare Trust can be sure that the Trust’s assets will go directly to his chosen Beneficiaries, however the downside is that there is little control over how or when the Beneficiary receives the trust funds. You can set up a bare trust for minors.

    What is a Discretionary Trust?

    A Discretionary Trust gives Trustees discretionary powers:

    • About how to distribute Trust funds and whether to distribute income or capital to the Beneficiaries; 
    • Whether or not to pay out any trust funds to Beneficiaries;
    • To select or not to select one or more beneficiaries to receive trust funds. 

    What is an Interest-In-Possession Trust?

    An Interest-in-Possession Trust is usually designed to provide income or property to a specific Beneficiary (let’s call him Beneficiary A) for their whole life. Upon their death, the capital of the Trust goes to Beneficiary B. 

    Let’s use the example of a divorced man with children, who re-marries. Upon his death, he may want to ensure that his new wife is well looked after for the rest of her life, but ultimately he wants his children to inherit the family house. Therefore, he could create an Interest-In-Possession Trust, which allows for his new wife to live in his house until she dies. Once she dies, the property would pass onto his children. Legally speaking, the wife would be known as the ‘life tenant’ and the children would be known as the ‘remaindermen’. 

    What are the tax implications of Trusts?

    Trusts are taxable arrangements and depending on the type of Trust, there will still be income tax, capital gains tax and inheritance tax payable by the Settlor, the Trustees or the Beneficiaries. For inheritance tax, there are additional costs known as the:

    • Periodic Tax Charge, charged every 10 years and based on the value of the Trust’s assets less the Nil Rate Band; and
    • Exit Tax Charge, paid on any capital withdrawn from the Trust and capped at 6%.

    Taxation of Trust funds can be a complicated area, for which it is worth speaking to a financial adviser or tax adviser. If you would like a recommendation from us, please get in touch.

    How long can a Trust last for?

    A Trust does not last forever and has a limited timespan depending on the type of Trust that it is. A Trust governed by the Perpetuities and Accumulations Act 2009 can last for up to 125 years. If you would like to set up a Trust to last for a specific period of time, please speak with one of our Estate Lawyers. 

    What is a Will Trust?

    Oftentimes when writing a Will, people will make set gifts to Beneficiaries, however as the life circumstances of Beneficiaries changes, it could be that a gift would be better served going to another person or Beneficiary. This is where a Will Trust comes in. Instead of committing a particular gift to a particular Beneficiary at the time you draft the Will, a Will Trust allows a decision to be made much later on as to how much of your estate any particular Beneficiary shall receive. This means that you can ensure your estate passes to the Beneficiaries who would be in most need of it. 

    Am I rich enough to need a Trust?

    You do not need to be a millionaire or have numerous possessions to set-up a Trust. If you would like to consult with our Estate Lawyers today, please leave your contact details on this webpage and one of the Team shall be in touch by the next Working Day. 

    Who needs a Trust?

    • Parents looking to provide for their children
    • Grandparents looking to give assets to their minor grandchildren
    • Families looking to protect their wealth
    • Spouses looking to provide for each other after one passes away

    Why do I need a Trust?

    • Tax efficiency 
    • Proper Inheritance Tax Planning 
    • Secure the livelihood of your loved ones

    How much does a Trust cost?

    Wherever we can, we endeavour to give fixed prices for our Estate Planning services. This gives you peace of mind and means there are no unexpected surprises when making payment. Trusts can vary in complexity, so to get an accurate quote, leave us your details and  one of our Estate Planning Lawyers shall be in touch.

    What is the process to create a Trust?

    Once you have completed our client on-boarding, our Estate Planning Lawyers shall arrange a time to take your instructions and understand your needs and objectives. We’ll then go away and prepare a draft of the Trusts you require.  We’ll continue to work with you until the Trusts have been prepared and are ready to be executed. 

    How do I get started?

    To get started, leave us your contact details and one of our Estate Planning Lawyers shall be in touch. At present, we are partnering with trusted firms to deliver all Trust work, however this should not impact the quality of the service you receive.