Trusts are used to manage wealth for those you would like to benefit from your estate in the future. They can also be used to protect assets so that more of your estate can be passed to the people and causes that are important to you. In this article, our Estate Planning Solicitors provide information on some of the different types of trust you can set up and their advantages.
When you put assets into a trust, they no longer belong to you (provided that you meet certain conditions). Instead, they will belong to the trust. Those appointed to manage the trust are called trustees. They have a legal duty to look after the trust assets for those who you wish to benefit from the trust. When you set up a trust, you can decide the rules for managing it. You can state who should benefit from the trust and when they can have access to the assets.
One of the main reasons people set up trusts is for Inheritance Tax (IHT) purposes. As detailed above, once you put money or property into a trust, it no longer belongs to you. This means that, when you die, these assets will not be considered as part of your estate for IHT.
You can use a trust to protect assets for beneficiaries who might not be able to manage them themselves. For example, if you have young or vulnerable beneficiaries, the assets that would otherwise be passed onto them directly could be managed by the trustees, either in perpetuity or until they are old enough to do so themselves.
There is a range of different trusts that might be beneficial depending on your circumstances.
This is a simple trust whereby the trustees manage assets for a beneficiary until they are old enough to inherit. Once they are 18, the beneficiary can demand that the assets are transferred to them. Parents or grandparents can use a bare trust when they want to make a gift to a young child.
Discretionary trusts give trustees complete discretion to decide how they should distribute trust income, when to do this and to which beneficiaries. Trustees have wide-ranging powers so you should choose them carefully.
The beneficiaries are entitled to live in a property owned by the trust. They will also have access to any income generated by the trust, although they do not have the right to the property or investments that are generating this income. You can use this type of trust to provide a home or ongoing income for a beneficiary.
These combine elements of different trusts to satisfy your specific requirements.