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Making a
Trust
What is a trust?
A trust is a
formal transfer of assets (it might be property, shares or money)
to a small group of people (usually two or three) or to a trust
company with instructions that they hold assets for the benefits
of others.
If the trust
is to be made in your lifetime, to take immediate effect, then it
is usually evidenced by a trust deed and often referred to as a
“settlement”. If it is to be created on or shortly after
your death then the trust rules must be set out in your will, known
as a “Will Trust”.
What does a
trust do?
Whether by lifetime
settlement or by will, the trust document states who are responsible
for looking after the gifted assets
(the trustees), who are to benefit (the beneficiaries) and any rules
or conditions which the trustees and beneficiaries must adhere to.
The separation of the legal ownership and beneficial ownership,
which were once inseparable, is the unique characteristic of the
trust concept whereby the trustees are the legal owners but the
beneficial owners are the beneficiaries.
How long should
a trust last?
How long a trust
shall last is entirely as you think appropriate but you must stipulate
the trust period in the trust document. It may be just a few years,
perhaps during a person’s widowhood or until a child attains
a certain age or marries. If you are creating the settlement in
your lifetime then you can appoint yourself and your spouse as trustees
if you so wish so that you remain in control of the assets and decision
making.
Why make a trust?
Throughout their
history, trusts have been used to avoid or address problems in two
main areas -
1) Taxation
2) Family Matters
Making a trust
for taxation purposes
In your lifetime
you can create a trust into which you can place chosen assets which
you no longer need yourself. This reduces your own wealth and thus
your exposure to inheritance tax - or maybe even wealth tax should
that become a reality.
By creating
a discretionary trust in your will for the benefit of your spouse
and children, you can take advantage of the nil rate band of inheritance
tax , consequently making considerable savings against tax.
With further
advice being available from our in-house independent financial advisers,
we can also provide advice on how best to ensure any assets or cash
legacies are protected or invested to the advantage of the beneficiary.
Making a trust
for domestic reasons
There can be
many reasons for creating a trust for domestic reasons. Some examples
are given overleaf.
Example 1
You might be
fearful of losing mental capacity or that your possessions will
be taken over by Government Agencies or even fortune hunters.
Solution
You could place
your assets (say your house) in trust for yourself for life so that
only the trustees you have chosen can deal with them according to
your wishes rather than the Court of Protection or Social Services.
Example 2
Parents, grandparents
and others have always been concerned that children and grandchildren
are at risk if they receive or inherit too much too soon
Solution
Create a trust
to hold the assets until the children are older and wiser
Example 3
You might currently
have an aged dependant – a widowed mother perhaps or retired
housekeeper who would need continuing care should you die before
her.
Solution
A trust can
be created to hold sufficient capital to continue the help.
On her death
the funds can return to you or pass to your family.
Example 4
Your son or
daughter might risk bankruptcy or an unstable marriage or other
relationship, be handicapped and in need of special care or for
some other reason be incapable of managing their own financial affairs.
Solution
In any of these
situations, shares, cash, property or other forms of wealth can
be placed into a suitable trust carefully worded to take account
of the perceived risks surrounding the intended beneficiary.
What types of
trust are there?
Most trusts
fall into one of two main categories depending on how the income
or benefit is dealt with. These two main categories are –
1) Interest
– in – Possession Trusts
2) Discretionary
Type Trusts
There are three
main types of discretionary trusts, all of which give the trustees
the power to make gifts of capital and or income to a stated class
of potential beneficiaries.
Copyright 2004,
Blackett Hart &
Pratt Solicitors
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