Trusts
A trust is a legal arrangement where one or more persons, called trustees, look after and deal with assets (the trust property) for the benefit of the trust beneficiaries. The trust deed, which might be incorporated in a Will, establishes the obligations of the trustees and how they are to exercise those obligations on behalf of the beneficiaries.
It is essential to have trusts drawn up properly as they establish control over assets for a long time, possibly decades. Also it is important to build in flexibility to allow for changing circumstances in the future.
There are many different reasons for using trusts. For example:
- The co-ownership of a house
- The creation of lifetime gifts for young people
- Deferring the payment of Capital Gains Tax
- Avoiding the payment of Inheritance Tax
- Making special provision for mentally incapacitated adults and in many other differing situations.
A trust is useful for passing assets out of one person’s estate without going directly into another person’s but being held instead for their benefit by the trustees. Accordingly, it is very important to choose trustees who understand their duties and who will carry out your instructions carefully.
Trusts can take many forms depending on the circumstances to hand. However, broadly speaking the main types of Trust are:
- Absolute Trusts
Where a beneficiary is absolutely entitled to the trust property and any income arising from it and the property is treated as though it were his own for all tax purposes. The beneficiary, if 18 years of age or older, can demand that all of the assets in the trust are transferred over to him or her to do with as he or she pleases.
- Interest in Possession Trusts
These are used where someone wishes one person to enjoy the income from the trust fund during their lifetime, and for the trust assets then to pass outright to somebody else. An example would be leaving your spouse an income for life, with the capital safeguarded for your children following their death.
- Discretionary Trusts
These are used where it is desired that the payment or distribution of income to the beneficiaries is at the discretion of the trustees. No beneficiary has a right to receive the income and so there is no interest in possession. Discretionary Trusts are very flexible and can be used where, for example, you wish to benefit a group of individuals, such as your spouse, children and grandchildren but have not yet decided what shares each should receive.
- Accumulation and Maintenance Trusts
These are a special type of Discretionary Trust generally used to provide financial support for children and grandchildren. At the beginning of the trust all of the beneficiaries are generally under 25 years old but that by the age of 25, one or more of the beneficiaries at least must become entitled to income from the trust. These trusts are particularly useful for saving school fees and for providing for grandchildren. Recent changes to the way trusts are taxed means that there may be tax payable if the trust beneficiary is not entitled to receive all the trust property when they turn 18 years of age. However, there may be compelling reasons to reserve the trust property until the beneficiary is older.
Our specialists can deal with all aspects of trusts administration, from creating the trust, to dealing with changes to the trustees, arranging for payments to be made from the trust and advising trustees of their ongoing obligations.
Click here to learn more about the ongoing obligations and duties of a trustee.
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