What is a Trust ?

A trust (which is also known as a settlement) is a formal legal arrangement whereby assets (e.g. property, shares or money) are transferred to several people – trustees – on the basis that the trustees will hold and manage the assets for the benefit of another person or persons – the beneficiary or beneficiaries.

What is a Trust?

  • A trust (which is also known as a settlement) is a formal legal arrangement whereby assets (e.g. property, shares or money) are transferred to several people – trustees – on the basis that the trustees will hold and manage the assets for the benefit of another person or persons – the beneficiary or beneficiaries.
  • The person who creates the trust and places assets into it is the settlor.
  • Trusts work by separating the legal and beneficial ownership of assets which means that the trustees become the legal owners but the beneficiaries remain the beneficial owners.

When can I set up a Trust?

You can set up a trust by settling assets into it during your lifetime or you can create a trust by your Will in the form of a Will trust which only comes into effect after your death.

What assets can I put into a Trust?

You can actually put any type or kind of asset into a trust but what you actually put in to it depends upon what you are trying to achieve with the trust and also whether you want income generating assets or capital growth of those assets.

For how long can a Trust last?

From the date of creation, the maximum duration of a trust is 125 years. At that stage it must be wound up and any assets remaining within it distributed.

Explain the benefits of making a Trust?

A trust can be of enormous benefit in any number of situations. Some of the most common reasons for setting up a trust are:

  • As a means of ‘ring-fencing’ and thus protecting family assets making sure that family wealth can be passed on to generations to come.
  • As a tax efficient way of preserving wealth and assets.
  • To protect any under-age children and to manage funds for them during their minority.
  • To protect a disabled child or a vulnerable adult who is unable to manage his/her own affairs because they are suffering from an addiction or are just irresponsible, for example.
  • To avoid making an outright gift of an asset where you might have concerns that the assets will be dissipated. You could place the assets into a trust and give only a life interest to the beneficiary. On the death of the lifetime beneficiary the assets will either revert to you or pass on to other family members.
  • You could set up a lifetime trust and put assets into it which you no longer need thereby reducing your wealth and potentially minimizing inheritance tax (IHT) on your death. For more details of how a lifetime trust could benefit your family see details of the Universal Wealth Preservation Trust.
  • To pass assets on to younger family members such as your grandchildren you could set up a trust bypassing your children which also has the effect of reducing their exposure to IHT. The trust could be set up either during your lifetime or as a Will trust.

What type of Trust do I need?

There are many types of trust. What is right for you and your family will depend on your own unique set of circumstances including what you want to achieve and who you wish to benefit from the trust. The most commonly used trusts in the UK are:

  • Life Interest Trusts.

A life interest trust is also known as an interest in possession trust.

The effect of a life interest trust is to give someone the right to enjoy the assets placed in the trust for the duration of his/her life. You could set it up for a person to receive an income from the trust for the rest of his/her life with the capital passing to other beneficiaries of your choice on his/her death, for example.

This trust is useful because it means you can control the ultimate destination of the assets. The following are some scenarios of how it can be particularly useful:

  • You are concerned that your spouse will marry again and the children will lose out if she either spends her inheritance or decides not to leave it to them.
  • You have a reckless grandson and are worried about his spendthrift ways.
  • You have precious family heirlooms and do not want them to be sold or given away.

See details of the Universal Wealth Preservation Trust for more details of how setting up a lifetime interest in possession trust could protect your family.

  • Discretionary Trusts

As the name suggests a discretionary trust gives the trustees power to distribute capital and income to any of your named beneficiaries entirely at their own discretion. If you create a discretionary trust it is advisable to provide the trustees with a letter of wishes literally setting out your preferences in terms of how the trustees are to use their discretion.

Since a beneficiary’s entitlement is subject to the trustees exercising their discretion in that beneficiary’s favour it follows that no beneficiary has an interest until that point. This could be very useful in a number of scenarios several of which are as follows:

  • In the event that your son or daughter might divorce. Since he or she has no absolute entitlement to property in the trust it makes it more difficult to be recovered by the other party on divorce.
  • Similarly, if one of your beneficiaries were to become bankrupt, the trustee in bankruptcy would not be able to seize funds in the trust.
  • And if your beneficiaries were in receipt of social security benefits their entitlement would not be affected.

See details of the Universal Wealth Preservation Trust and how it can continue to benefit generations of your family on becoming a discretionary trust after your death.

  • Disabled Persons Trusts

There are specific rules about the creation of disabled persons trusts and a number of criteria that must be met by the disabled person before the trust can be established.

If you are considering whether a disabled persons trust is appropriate for you or a family member our team of trust experts would be happy to discuss your requirements.  

  • Charitable Trusts

If you wish to support a charitable cause you can create a charitable trust. You could do this either in your lifetime or via your Will.

How Universal Wealth Preservation can assist you

If you are seeking advanced estate planning services and need advice on trust creation and management, we have the expertise to assist you. Our highly specialist team of trust experts work closely with our team of tax experts to advise on and create tax effective trust arrangements, whether that be onshore or offshore and irrespective of your level of wealth.

We also have a highly skilled trust management team who deal with all trust administration issues including trust accounts, taxation, variation of trust provisions, beneficial entitlements, distribution of assets and the winding-up of trusts. Whatever your requirements and individual circumstances, we can provide innovative and pragmatic solutions to meet your needs. 

If you would like to review any of your estate planning arrangements, our team of experts are here to assist you. Please contact us for more information or to arrange a FREE no-obligation home consultation with one of our advisers. We would be very happy to discuss your specific requirements.

Please contact us for more information or to arrange a free-no obligation home consultation with one of our advisers.

For more information or to book your place on one of our forthcoming Keep it in the Family seminars and to find out how you can structure your wealth and protect your assets click here.