Information on trusts

Trusts are a way of holding and managing money or property for those who might not be ready or able to manage it themselves - a child for example.

Used alongside a Will, trusts are a way of ensuring your assets are passed on as you would wish. Alternatively, you can use a trust to pass on your assets while you are still alive.

If you are considering creating a trust, it's important that you weigh up the benefits against the costs of running one, especially if it continues for many years.

On this page:

Reasons for setting up a trust
Creating a trust
Main types of trust
Who's who?

Reasons for setting up a trust

• To make provisions for family now and in the future.
• To assist in effective tax planning, especially reducing the amount of Inheritance Tax payable.
• To make a gift to a loved one, with conditions, e.g. how trustees should administer the trust, what age the person should be when they receive the trust, circumstances in which they can have the trust… and so on.
• To protect assets that you don't want the beneficiary to have full and free access to.

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Creating a trust

You can create a trust in two ways:

• Write it into your Will - in which case, your executors automatically become trustees of the trust, unless you direct otherwise.
• Execute a trust deed - which is a different and separate legal document appointing trustees.

Either way, it is a good idea to seek professional help if you want to set up a trust.

For more information about setting up a trust call us on 0800 195 2924.

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Main types of trust

Bare trust

This is held in the trustee's name, but the beneficiary can take possession of both the income and the trust property whenever they want. For example, you could use this type of trust to pass gifts to children whilst still alive.

Interest in possession trust (also known as a Life Interest trust)

This is a legacy left for one or more people for the duration of their lives, but which goes to someone else after they die. The beneficiary has legal rights to all the trust's income (after expenses) but not to the trust property. For example, you could set up this type of trust in your Will, to leave income from the trust property to your partner for life and to your children when your partner dies.

Discretionary trust

This enables trustees to decide how much income or capital, if any, to pay to each of the beneficiaries, but no beneficiary has an automatic right to either. For example, you could use this type of trust to as a way to pass on property and still keep some control over it through the terms of the trust deed. Other benefits of this type of trust:

• Enables part of an estate, principally property or investments to be put into trust on behalf of the beneficiaries.
• Any income paid to the beneficiary is treated as if 40% tax has already been paid.

Accumulation and maintenance trust

This can be used to provide money to look after children under 18. Any income that isn't spent is added to the trust property which passes to the children when they become 18.

• In England and Wales, the trust turns into an interest in possession trust at that point.
• In Scotland, once a beneficiary reaches 16 they could require the trustees to hand over the trust property.

Bereaved Minors Trust

This is a special type of Accumulation & Maintenance Trust that can only be created on death of a parent - or the Criminal Injuries Compensation Board - for a minor child who will become absolutely entitled to the assets at age 18.

Disabled Persons Trust

Allows trustees to attend to the needs of a person with disabilities.

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Who's who?

There are a number of terms that you may hear in relation to a trust. Here are the main three:

Settlor - The settlor creates the trust and puts 'property' into it at the start, often adding more later. This 'trust property' can be anything, including land or buildings, investments, money, antiques or other valuables. The settlor says in the trust deed how the trust's property and income should be used.

Trustee - Trustees are the 'legal owners' of the trust property and must deal with it in the way set out in the trust deed. They also administer the trust. There can more than one trustee and if your affairs are particularly complex, you can use a professional trustee.

Beneficiary - This is anyone who benefits from the property held in the trust. The trust deed may name the beneficiaries individually or define a class of beneficiary, such as grandchildren or children.

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