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What is a Trust?

Simply put, a trust allows you (the settlor) to entrust your assets (the trust fund) to the trustees for the benefit of your beneficiaries.
It is the responsibility of the trustees to take control of, manage and ultimately distribute the trust fund to your beneficiaries.

A trust is one way to move money out of your estate, perhaps to reduce your potential liability to certain taxes. It can also avoid the potentially lengthy delays often associated with administering estates so that, in the event of your death, the people you want to benefit from your estate do so as quickly as possible.
You can put all manner of assets in trust, including investments and life assurance policies.

The appropriate trust to be used will depend on your individual circumstances. Please get in touch so we can connect you with the right adviser to aid you in setting up the correct trusts.

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Who is Involved?

There are normally three parties involved in setting up a trust:

  • You, the settlor;
  • The trustees; and
  • The beneficiaries.

There may also be a fourth party involved:

  • the protector who monitors the trustees and ensures that their actions are in the best interest of the beneficiaries.

Why use a Trust?

There are generally three reasons people want to create a trust:

  • Mitigating their potential liability to certain taxes.
  • Controlling how and when their assets are distributed and to whom.
  • Estate planning for potential changes to your circumstances.

What's a...

Trustee

The trustees are the legal owner(s) of the assets, and manage the assets for the benefit of the beneficiaries.
they are also responsible for dealing with the trust fund on the settlor’s death.

Settlor

The settlor is the person who sets
up the initial investment. you can be a settlor either on your own (as a single settlor) or with someone else, such as a spouse or civil partner* (as joint settlors). the settlor(s) transfers the ownership of the assets to their chosen trustees. some trusts need to be established by means of a loan where the settlor(s) lends the money to their trustees to invest.

*as defined by the Civil partnership act 2004

Beneficiaries

The beneficiaries are the individuals or groups of people named under the trust. these are often children, or other family members. depending upon the nature of the trust, it may also be possible to include future generations, such as grandchildren as yet unborn.

Know your Trusts

Absolute Trust

A trust created by means of a gift, where the beneficiaries are named at outset and cannot be changed at any time in the future. When a beneficiary reaches the age of majority (which is 18 in England and Wales but will depend upon the jurisdiction) they can demand their rights under the trust.

Discretionary Trust – Settlor Included

A trust (from which you can benefit) created by means of a gift, where the beneficiaries can be added to and the trustees use their discretion to decide who may benefit from the trust and when. the beneficiaries cannot demand their rights from the trustees.

Discretionary Trust –

A trust created by means of a gift, where the beneficiaries are named at outset and cannot be changed at any time in the future. When a beneficiary reaches the age of majority (which is 18 in England and Wales but will depend upon the jurisdiction) they can demand their rights under the trust.

Excess Income Trust

Combines the discretionary trust – settlor excluded with an iHt exemption which means gifts are immediately outside of your estate. to make the most of this tax planning opportunity, regular top ups are made to your trust out of your surplus income.

Discounted Gift Trust – Bare & Discretionary

A trust created by means of a gift, but under the terms of
which you retain the right to receive certain capital payments which may continue for the whole of your life or until the fund has been exhausted. For uk iHt purposes, the ‘discount’ is determined by the actuarial value of the withdrawals and has the effect of reducing the value of the transfer into trust.

Loan Trust – Bare & Discretionary

A trust which you create by lending money to your trustees to invest, rather than giving it away. the loan is repayable to you on demand, giving you flexibility for the future and can be repaid to you on an occasional basis or by regular repayments.

Lifestyle Trust

A trust created by means of a gift, but under the terms of which you retain the right to a number of ‘policy funds’ (groups of individual policies within a bond) at future dates specified at outset. the remaining trust fund is held within a discretionary trust – settlor excluded, trust as explained above.

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