What is a Trust?
A Trust is a legal relationship which can be made in lifetime, or on death, when a person (the settlor) transfers the legal title to property or other assets to another person (the trustee) to hold for the benefit of a third person (beneficiary or beneficiaries). In some cases the beneficiary may also be the settlor, and in other cases the trustee may be the beneficiary.
Trusts are generally used for the separation of legal ownership and beneficial interest. The Trustees become the legal owners of the Trust property, so far as the beneficiaries are concerned. The trustee has a responsibility to the trust to maintain assets and distribute them to beneficiaries in accordance with the wording of the trust deed.
General types of Trusts
Lifetime / Living Trusts
A living trust occurs where a person (the grantor) transfers their assets into a trust whilst they are still alive. The trust is then managed by a trustee for the benefit of the beneficiaries, and thereby allowing assets to be transferred without going through probate. This can offer greater privacy and a simpler distribution of assets after the grantor’s death.
Will Trusts
A will trust is created by a person’s will and comes into effect upon that person’s death, granting the named trustees control over assets on behalf of the beneficiaries.
The terms of the Trust, as stated in the will, would generally specify what the trust provides each beneficiary, or grant the trustees discretion over how and when they distribute funds (usually by way of a letter of wishes).
Life Interest Trusts
Life interest trusts, also known as interest in possession trusts, are also (alike will trusts) created by your will. They are regularly used in estate planning to safeguard assets and provide financial security for the ‘life tenant/s’.
In a life interest trust, the “life tenant” could receive income generated by the trust’s assets, or to use trust property during their lifetime. Settlors often establish a life interest trust to secure that benefit for the life tenant without granting them outright ownership. Once the life tenant then passes away, the benefit of the assets would then be distributed to the named beneficiaries.
Discretionary Trusts
A discretionary trust grants the trustee(s) discretion as to how they manage the trust. The trustees would generally have a wide range of trust powers and would be given total control over the assets of the trust. The beneficiaries therefore have no legal entitlement to the assets, and would only have the opportunity to benefit from the trust (at the discretion of the trustees).
Discretionary trusts are generally used to provide for those who may need financial help at some point in their life, and often for beneficiaries who are not capable or responsible enough to deal with trust assets or money themselves.
Family Protection Trusts
A Family Protection Trust is a type of ‘lifetime discretionary trust’, which grants the trustees the power to decide when and how much a person will benefit from the assets of the Trust.
An asset protection trust is a bit like a safe deposit box for your assets and wealth. You transfer assets into the trust and then, based on the provisions of the trust (which you set), they are distributed to your chosen beneficiaries after you have passed away. The trust owns the assets, so they are usually not counted as a part of your estate, meaning that they could be protected from inheritance tax and care home fees.
The family protection trust is set up during your lifetime, and you can transfer all of your assets, including your property and savings up to the (current) inheritance tax threshold of £325,000 (per person).
Property Trusts
A property protection trust is created by your will and allows someone to benefit from your estate after you have died, the beneficiary would therefore be treated as if they owned the assets, without inheriting it.
Common reasons for setting up a trust
- To control & protect assets
- When someone is too young (usually under the age of 18), or lacks the capacity to responsibly handle their affairs
- When the settlor believes that a trustee would be best suited to manage the assets in a responsible or even in a commercially more profitable way
- Taxation reasons
- To pass on assets when you die
- To pass on assets while you are alive
We can provide assistance with the day-to day administration of your Trust, including making distributions to beneficiaries, handling requirements in relation to accounts and reviewing the strategies chosen for the investment of the assets held within the Trust.
Creating a Trust in Your Will
Placing your assets in a Trust is an effective means for you to provide for beneficiaries of your choice and can also be a way in which you can protect various assets. Our Solicitors are highly experienced in drafting Trusts that provide you with peace of mind for the future and supplying additional security to your loved ones.
A Trust can be used to pass on your assets in the way that you wish. They can be set up in your lifetime or can be included within your Will.
Setting up a trust
Legal work involved in setting up a trust will generally include :
- Helping clients decide what type of trust they want to set up, the reasons why and the potential benefits and drawbacks
- Deciding on the beneficiaries
- Deciding whether you want to establish very clear and detailed instructions and duties for the trustees
- Deciding what assets will be transferred into the trust
- Deciding who you will appoint as trustees
- Who you want to be the trustees
- Advising on and drafting a detailed letter of requirements, guidelines and aims of the trust
- Drafting the trust document
- Legal transfer of assets into the trust
- For lifetime trusts, dealing with HMRC formalities
Ambrose Crookes Solicitors are here to help. Should you have any queries, or require a free, no obligation consultation to discuss your legal matter in confidence, please feel free to contact us.