What is a Trust?
Trusts are legal arrangements created to help manage a person’s assets. These assets can include:
- Valuable Items
Trusts are set up by a person known as “the settlor”. The settlor puts assets into the trust to benefit another person later in life – often a child, spouse, or loved one.
Once the Trust is set up, and the settlor has deposited assets, it will be held and managed by a person or group referred to as “the trustee”.
The trustee will manage the trust to benefit a person known as “the beneficiary”. The beneficiary is the person who will receive the end value of the trust when the time comes. The beneficiary will normally be closely linked to the settlor through family ties or perhaps through business ties.
Why set up a trust?
Trusts have been used for centuries due to their flexibility, usefulness and wide range of benefits. Trusts can be set up in life or upon death to pass assets onto the chosen beneficiary, ensuring your money or property is passed on to the proper person.
Common reasons for setting up a trust include:
- To protect and control family assets
- To protect spouses/civil partners/cohabitants or others
- For a beneficiary who is too young to handle their affairs
- To protect the vulnerable or those who have lost capacity
- To pass on assets while the settlor is alive
- To pass on assets after a settlor has died
- To protect against the risk of a claim
- To preserve tax benefits
- To reduce tax liability
- To protect against bankruptcy
Trusts can also be used to set up a Charity or Benevolent Trust.
For further information about setting up a trust or to find out more about the different types of trusts, contact our expert team today.
What are the different types of trusts?
There are a few different types of trusts designed for different circumstances and people.
The main types of trusts are:
- Bare Trusts
- Discretionary Trusts
- Accumulation Trusts
- Interest in Possession Trusts
- Mixed Trusts
- Settlor-interested Trusts
- Non-residential Trusts
- Vulnerable Person Trusts
If you are already sure of the type of trust you would like to set up, why not contact our team to get the process started? We’d be more than happy to help.
Alternatively, you can read on to discover more information about the different types of trusts available.
Bare trusts are a common type of trust used to pass on assets to young people, often children or grandchildren.
Although the trustees look after Bare Trusts and hold the assets in their name, the beneficiary can access the trust at any time once they are of legal age. This is 16 in Scotland and 18 in England and Wales.
The assets of a Bare Trust are set aside by the settlor and will always go directly to the intended beneficiary whenever they choose to receive them.
Discretionary Trusts give the trustee control over the assets and the subsequent income those assets generate. The trustees can make decisions on:
- What amount of capital or income gets paid out
- How often payments get made to the beneficiary
- Conditions to be imposed on the beneficiary
A typical example of a discretionary trust would be grandparents setting up a trust for their grandchildren but setting the grandchild’s parents as the trustees.
Accumulation trusts are designed for the trustee to accumulate additional income within the trust to be added to the capital of that trust. This income may then be paid out to the beneficiary if requested.
Interest in Possession Trusts
In an interest in possession trust, any income generated by the assets in the trust must be passed on immediately to the beneficiary (minus expenses if applicable).
However, the beneficiary does not have control of the assets and will have to pay income tax on any income they receive from the trust.
A mixed trust combines elements of different trusts into one. Tax rules will still apply to each part of the trust.
An example would be that the beneficiary receives the income generated (like an interest in possession trust) but can also access half of the trust fund if they so wish.
A settlor-interested trust is designed to benefit the settlor or their partner. The trust is designed to give security to the settlor if they are perhaps unable to work due to illness or redundancy.
The trust could be an interest in possession, accumulation, or discretionary trust.
A non-residents trust is where the trustees are non-residents of the UK. This is usually for tax purposes. A non-resident trust tax rules are incredibly complicated and should not be taken lightly.
Vulnerable Person Trusts
If the only beneficiary of a trust can be described as a vulnerable person, they will pay less tax on the income from the trust.
A vulnerable person counts as someone who is:
- Severely ill
- An orphan
- Suffering from a severe mental illness
As a trust is a legal relationship, it comes with a range of enforced trust laws. Even if you are setting up a trust for your spouse or child, trust laws must be followed.
Trust laws can be complicated, and many of them relate to tax rules, rules over ownership and regulations around the passing of the trust to the beneficiary. Trust laws change depending on the type of trust.
To properly manage trusts and to ensure that you abide by all the trust laws UK, it is strongly recommended that you elicit the help of a solicitor or lawyer.
J&H Mitchell has an experienced team of solicitors that fully understand the law of trusts. We’d be more than happy to answer any of your questions regarding trusts and trust laws.
Take advantage of our expert knowledge and get in touch with our welcoming team today.
Setting up a trust
Although trusts may sound like a complicated ordeal, with the help of a solicitor, trusts can be easy to manage and can be set up at any time. Trusts can also be written into your will, so they become active upon passing.
A professional solicitor from J&H Mitchel can help guide you through the trust process and assist you in setting up a trust by:
- Confirming and organising the assets of the trust
- Confirming the trustee(s) and beneficiary(s)
- Deciding when the trust will become active
It’s essential to choose people who you trust for your designated trustees. It’s also important to confirm with these people that they are willing to take on the responsibility of a trustee.
We recommend having at least two trustees, but up to four can be chosen.
Ending a Trust
Now that you know what is a trust and the different types of trusts, you may be wondering how a trust comes to an end.
Trusts can end in a range of different ways depending on individual circumstances and the exact type of trust being dealt with.
The most common ways a trust will end are:
- Coming of age of the beneficiary
- The death of the beneficiary
- The death of a settlor
- A decision by the trustees
- A decision by the beneficiary
Having a reliable solicitor can help ensure that the trust is ended in the right way and at the right time. Whether you’re the trustee or the beneficiary, a solicitor can help guide you through the claiming or ending of a trust and ensure everything is in order regarding tax, payments, assets and fees.
To hire a solicitor you can trust, contact J&H Mitchell today.