With the option to be arranged in many different ways, a trust allows you, the creator of the trust (also known as the settlor), to keep control over what happens to your assets and how they are used when you pass.
| What is a trust?
It is a legal relationship that can be created either in your life or on your death and allows a third party of your choice (known as a trustee or trustees) to hold assets on behalf of someone else or a group of people (known as a beneficiary or the beneficiaries). You can name anyone you wish to provide for to be a beneficiary – most common options for beneficiaries include your children or grandchildren, or a charity, or organisation.
The assets in the trust (cash, property, land, or investments) are held for the benefit of the beneficiaries and are held under the control of the trustees. The trustees have the power to deal with the assets in the trust and have a duty to manage the assets within the trust responsibly and appropriately. It is important to appoint people you trust to act as a trustee. Most often, there will be a trust deed which tells the trustees how they should distribute and manage the assets.
| What are the different types of trusts?
There are several types of trusts and the type you set up depends on your wishes. The most common are:
| Discretionary
A discretionary trust can be specifically tailored to your family and are a good option if you are unsure as to how you want to distribute your estate. It gives greater power to the trustees, as they have the power to distribute as they see fit. As everything is distributed to the beneficiaries at the trustees’ discretion, it is advised to write an accompanying Letter of Wishes. In the Letter of Wishes, you can inform the trustees of when you would like the beneficiaries to receive their inheritance; It is important to note that the trustees are not legally bound by the Letter of Wishes, but it may help guide them to fulfil your wishes.
They are also a good option if circumstances change unforeseeably. These are also useful if you want to leave your assets to current and future children or grandchildren. Furthermore, discretionary trusts can be a good choice for those who lack capacity due to illness or disability and those who might struggle with managing their finances. Another positive is that it does not affect those who are means-tested, and even if they inherit, they will continue to receive any state-given benefits.
| Bare
Bare trusts are arguably the simplest of trusts – giving all assets in the trust to the beneficiary as long as the beneficiary is 18 years old. The assets are held by the trustees, but the beneficiary can take ownership of their assets when they are old enough. They are also useful for leaving money to young children, for IHT planning as the initial trust arrangement could be exempt from IHT, but ONLY if you survive for a period of seven years after the initial trust gift was made.
If you would like more help and information on setting up a trust, get in touch with our Wills & Probate team by using our contact form or by calling 0800 988 7756.
