Why are Trusts used?
Trusts are a way of managing assets for the benefit of others. You can set up a trust at any time or write a trust into your Will.
At Timbrell Law, we are experienced in setting up and administering private trusts and can advise you on the various structures available to suit your needs and those of your chosen beneficiaries.
In helping you to set up a trust, we can also provide advice on the role of a trustee, the administration requirements of a trust and what the tax implications will be for your estate.
Quick Trust Glossary
The person who sets up the trust and decides how the assets are used.
The legal owners of the trust assets who manage them in accordance with the terms of the trust.
The individuals who can benefit from the income or capital of the trust. This might be a single person or a group of people.
Where the terms of the trust are set out.
Refers to the assets held by the trustees as part of the trust.
These are the powers granted to the trustees so that they can manage the trust.
Frequently Asked Questions - Setting up a Trust
Trusts are set up for a number of reasons, including:
1. to control and protect family assets
Once the assets are in the trust, the trustees will manage these on an ongoing basis until the assets are distributed or the trust ends. The settlor can act as a trustee of their own trust and can continue to make decisions about how the assets are invested and used to benefit their loved ones.
A trust is an alternative to an outright gift to a family member or friend, as a trust can allow your trustees to adapt to circumstances as they arise. If you make an outright gift, you cannot later change your mind and give it to someone else if you feel they are more deserving.
Holding assets in a trust also ensures that the beneficiaries’ circumstances do not put the assets at risk, e.g. on bankruptcy or divorce.
2. for minors who are too young to handle their own affairs
For example, a trust may be set up with the sole purpose of paying for the education of a grandchild. Similarly, a trust may be created through a Will which states that beneficiary will not inherit until 21 or 25. By deferring the age of inheritance, the funds are protected and managed by the trustees while the beneficiary matures.
3. for individuals who can’t manage their finances
Giving an outright gift to someone who does not have the ability to manage their affairs creates a number of problems. It can leave the individual vulnerable to financial abuse. It can also lead to any local authority support and means tested benefits being cut or reduced causing disruption and stress for the individual.
Placing money in a trust is a way of ensuing ongoing stability. The trust assets can be managed by the trustees, who can make payments or apply the funds to improve the individual’s quality of life. Such payments can be varied to ensure that they do not interfere with any local authority support.
4. to ensure your personal injury compensation does not affect your means tested benefits
Individuals who have received a payment as a result of an injury can place those funds in trust to ensure they are disregarded for the assessment of means-tested state benefits and services. Placing your compensation in trust gives you the option to benefit from the compensation and continue receiving means-tested benefits helping make your compensation last longer.
Step 1: Decide who you want to benefit
Step 2: Choose the type of trust you need
Step 3: Appoint your trustees
Step 4: Define the terms of the trust in a trust deed
Step 5: Sign the trust deed
Step 6: Transfer assets to the trustees
Trusts are set up to enhance the lives of others and the underlying trust structure could be in place for many years. Solicitors have the experience and skill to ensure that your trust is drafted to meet the needs of you and your family and provide the important additional advice on taxation and ongoing management. They can also work with you to ensure that all the necessary transfer formalities of gifting assets to the trustees are met.
At Timbrell Law, we can guide you through the process of creating a trust step by step giving you the peace of mind that the type of trust chosen is the best choice for your family.
What are the most common types of trusts?
Bare trusts are often set up to provide for children under the age of 18. The assets in the trust belong to the beneficiary, and they have a right to take control of these on turning 18. Until that time, the trust assets can be invested and applied by the trustees for the child’s benefit. Once a gift is made to a bare trust it is fixed and cannot be reversed.
Example: Education Trust for a Grandchild
A familiar example of a bare trust is where grandparents wish to set aside a lump sum for their grandchild (the beneficiary) to pay for school fees and extracurricular activities. The grandparents may choose to act as trustees themselves or appoint the parents to act instead.
Discretionary trusts are the most flexible types of the trust. Rather than making decisions about who should benefit from the trust assets at the outset, the settlor gifts assets to the trustees and names a class of individuals who can all potentially benefit. It is then for the trustees to decide what gets paid out (income or capital), which individuals benefit and how often payments are made. The purpose of the discretionary trust and its flexibility is that it allows the trustees to adapt to future circumstances and protect the trust fund.
Example 1: Family Trusts
For example, family trusts are often discretionary and are set up with a class of beneficiaries which include children, grandchildren and future direct descendants of the settlor. At any one time the funds could be distributed to pay for private medical care, family trips, school fees or even provide family members with a trust property to live in. The discretionary trust is flexible and can utilised to meet whatever the present needs of the family are.
Example 2: Trusts for individuals who do not have capacity
Discretionary trusts are also the best structure to provide for beneficiaries who are not able to manage their own affairs.
Life interest trusts are set up for one primary beneficiary, known as the life tenant. During their lifetime, the life tenant is entitled to receive any income generated from the trust and to use and enjoy any trust property. They will not however own the underlying trust assets. On the life tenant’s death, the trust assets are distributed to beneficiaries chosen by the settlor (i.e. the person who created the trust).
Example: Will Trusts for Married Couples
Life interest trusts are often incorporated into the Wills of married couples, with the surviving spouse named as the life tenant. The great advantage is that the life interest provisions protect the estate from:
- being swallowed up in care fees if the surviving spouse should later need care. The assets in the trust are ringfenced and cannot be taken into account during the assessment of care fees; and
- the risk of the surviving spouse remarrying or changing their Will to leave less to your family.
Property protection trusts are a type of life interest trust where the only asset held in the trust is property.
A personal injury trust is a way of holding and managing compensation received as a result of an injury. The injured party will be able to receive distributions and benefit from the trust funds. However once held in the trust the compensation is disregarded when assessing eligibility for some means tested state benefits and services. Therefore, a person (and their partner if they claim benefits together) can continue to receive these benefits in the future.
Still Looking For More Information?
If you need more information on trusts and how they can be used to support your family, then why not read some of our related blog posts for additional helpful insights.