A trust is a way of managing assets. They can be created during someone’s lifetime or on their death. Trusts can be used for a multitude of reasons but can have the effect of removing assets from your estate for inheritance tax purposes, making financial provision for someone, ensuring the property is passed onto someone specific, or perhaps down the bloodline and they are also used to provide control on how assets are managed.
There are three parties involved with the creation of a trust, the settlor, the trustee and the beneficiary.
The settlor (the original owner of the assets and the person setting up the trust) will transfer their assets to the trustee (the person or persons trusted to look after the assets) who will be instructed to hold and manage these assets on behalf of the beneficiary (the person or persons the settlor would like to benefit from the assets).
A trust can be useful when the settlor would prefer not to gift their assets outright to the beneficiary. All the terms, conditions and details relating to the trust are outlined in a trust deed.
That’s the real basics…
There are a number of different types of trusts and many are useful when looking to preserve, protect, and pass on your wealth.
Here are some of the well-known types of trust:
A bare trust in simple terms is created when you would like to pass assets onto someone who is a minor (under the age of 18). Where this is the case then trustees would look after the assets until such a time when the beneficiary became old enough to take control of the assets. They would also benefit from interest generated where for example cash was invested and gained interest.
Interest in possession trusts are trusts where you would like a beneficiary to benefit from the income generated by the trust or the right to enjoy the trust asset (known as the life tenant) until they are ultimately passed onto the intended beneficiary. This is often used to protect against sideways disinheritance.
A discretionary trust is a very common type of trust and like vulnerable persons trusts, trustees have the power to manage and distribute trust assets. A very simple example is where you may wish to leave money to your child but because they have a gambling addiction, you don’t want it to be squandered so you appoint trustees to manage the assets. These can then be drip-fed to the beneficiary to ensure that it is not squandered. Other examples include where you want to leave money to your grandchildren but knowing what many 18 years olds would be like with large sums of money you may appoint their parents (your children) to manage the assets. They can be given some money for things like driving lessons, university fees, house deposits etc.
If you are looking for more information about trusts or would like assistance in setting up a trust, then our friendly and professional consultants are happy to have a no-obligation discussion with you about your circumstances. Following the discussion, we will put you a position to be able to make an informed decision about your estate planning.
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