What is a Trust?

A Trust is a legal arrangement used for protecting property and land, money, investments or assets.

There are a variety of types with different tax regulations, so it’s important to make sure you have chosen the right Trust for your needs.

Let’s start by looking at why you might want a Trust…

  • Protect somebody who is too young to handle their own affairs – typically under the age of 18
  • Support somebody unable to handle their affairs because they are incapacitated – either mentally or physically
  • Protect family assets, and maintain control
  • Hand down assets while you are still alive
  • Disburse assets when you have passed away
  • Under inheritance rules should you die without a Will – this applies to England and Wales only

The people who benefit from the Trust – those acquiring assets specified within the Trust – are known as Beneficiaries. It should be noted that if you are setting up the Trust, you can also be a beneficiary.

That’s not to be confused with Trustees.

There must be at least one Trustee and it is their role to ensure that all assets are dispersed in accordance with the specifications of the Trust. That includes the overseeing of selling property and assets or altering them in any way. They are also responsible for the payment of any tax due from Trust activities – which would come from Trust funds.

Trustees can also be beneficiaries, but it is wise to ensure Trustees are chosen carefully to protect the wishes of the person who created the Trust – known as the Settlor.

There are a number of different types of Trusts and they vary in complexity.

The most straightforward, known as a Bare Trust, covers capital and income going to one or more beneficiary. They can access both the interest and the capital as soon as they reach the age of 18.

Other Trusts include:

  • Interest in possession – beneficiaries are entitled to the income from any Trust investments, but not the actual asset. This is likely to continue to be passed down to future generations.
  • Discretionary – trustees are responsible for deciding how income and sometimes the capital are dispersed, but still to the specified beneficiaries and in line with the Trust deed
  • Accumulation – income generated from the Trust capital is retained within the Trust to increase the capital over time
  • Settlor-interested – this expression is used to cover any of the above Trust types, where the beneficiary or their spouse/civil partner is the Settlor. This is common for protecting individuals with long term illness, or potential care requirements.

There are other types, but the above covers the most common set ups.

Why would you want a Trust?

Trusts are set up for many reasons, but they can be beneficial in protecting assets if you need to go into long term care. So, when assessing your eligibility, the authorities could not include Trust assets in the financial calculations. This translates to ensuring you would not have to sell your home, as an example.

Additionally, there can be tax benefits from Trusts, both in terms of Inheritance Tax and potentially Capital Gains Tax. However, we do have to add extreme caution here. This is not about tax avoidance. Equally, Trusts are very complex, so we would encourage you to seek appropriate advice before setting up any Trust.

We like to start by talking to you about what you want to achieve. Let’s identify your concerns, the assets you want to protect and what you would like to give to your loved ones now or in the future. From there we can advise you on the most appropriate steps for your unique situation.

If you would like to talk about using Trusts to protect your assets, please contact us on 01344 875 310.