What is a trust?
A trust is where assets are formally transferred to someone else. This could be several people, or a trust company that holds the assets until a certain time, when they are released to others – who are called the beneficiaries.
People often think that trusts are complicated, expensive and something that is only necessary for people who have a lot of money to put into them. However, a trust is a useful device for moving money out of your estate no matter how large or small it is, particularly as a way of reducing Inheritance Tax.
Those looking after the assets are called trustees. They are entrusted with taking care of the assets in the best interests of the beneficiaries of the trust. This means that you can be your own trustee; for example, if you are putting money into a trust for your children when they turn 21, but you must always put their needs as beneficiaries before your own.
There are usually two trustees – a professional like a solicitor and a trusted personal contact, like a family member.
Benefits of a trust
Common reasons for setting up trusts include:
- Protecting family assets
- Protecting assets from tax
- To pass on assets to the people you want to receive them when you die
- To make sure that people won’t inherit certain assets if you don’t want them to
- To protect the assets of someone too young to deal with them, such as inheritance from grandparents
- To protect the assets of someone who is incapacitated
- To protect your assets so that they can be used for your own care if you need it in the future
- To aid succession planning with a family business
Types of trust
In the UK, there are several types of trusts available for different situations. If you aren’t sure which of these is right for you, please ask us and we will help you to make the best choice for you, based on your individual and family circumstances.
This type of trust is used to give everything within the trust to an individual straight away (as long as they are 18 or over). This can’t be changed and ensures that the person that you want to receive a specific asset receives it without any delay.
Trustees have far more flexibility and control over these types of trusts. Unlike absolute trusts, they can decide when the assets in the trusts are paid to beneficiaries and which of these will receive assets.
These types of trusts allow trustees to accumulate income from the trust, whilst adding to its total capital. Trustees are also able to pay funds out of an accumulation trust to beneficiaries in the same way as a discretionary trust.
Interest in possession trusts
This trust allows beneficiaries to draw income from a trust right away, but only in relation to the income that the trust has generated. The assets within the trust that is generating income remain your property, or the property of a person designated to receive it if you die.
Beneficiaries receiving income from an interest in possession trust will have to pay income tax on the income. They are often used to provide income to a partner or spouse in case you die, with an understanding that when they die, the assets will be passed onto your children or whomever else you decide to leave it to (rather than someone that they might want to leave it to, such as children from a previous marriage or a new partner if they remarry).
A mixed trust combines aspects of separate trusts into one. For example, assets could be split between an interest in possessions trust and an absolute trust.
Advice about setting up a trust
There are also trusts that can be set up for people who aren’t living in the UK. For more information about these, or any of the types of trusts above, speak to a specialist trusts solicitor by calling one of our offices below.
Contact a specialist trusts solicitor
At each of our solicitors’ office locations, we have specialist trusts solicitors who are highly qualified to advise you about anything related to trusts. Call to speak to one of the team today, or alternatively you can email me directly at firstname.lastname@example.org
Find out if you’re eligible for a discounted service
Depending on the number of people you have making a will or lasting power of attorney at the same time, you may be entitled to a multi-will or lasting power of attorney discount. Similarly, we offer discounts to over 65’s who may also be entitled to a further discount if one or more people make a will or lasting power of attorney together. To check whether you are eligible for a discount email Head of Department Andrew Hitchon at email@example.com or call him on 01858 436 974.