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Everything you ever wanted to know about a trust
Lawyers often talk about ‘trusts’ but there is generally a lack of understanding about what trusts are, how they are used and how they can be of benefit when you are planning for the future. This article provides some insight.
What is a trust and who runs it?
A trust is where one person holds money or assets on behalf of, and for the benefit of, another person. A "trustee" is the person who controls and looks after the money and/or assets.
What types of trust are there?
We will be running a series of articles about the trusts mentioned below. However, if you need to know more before the next article, give us a call!
- Discretionary trust – This trust lists various people that can potentially benefit from the trust and the trustees decide from the list who gets what and when. These are often used for inheritance tax planning or protecting assets.
- Life interest trust – This gives someone a limited interest in a particular asset. The person benefiting from the trust will be entitled to use the asset or receive the income generated by the trust until such time as they die, remarry or cohabit. These are often used in second marriage situations.
- Vulnerable persons trust – A special trust that is created for someone that is in receipt of means tested benefits.
- Will trust – A simple trust in a will where you specify an age at which the beneficiaries become entitled to the funds – for example at age 18, 21 or 25.
- Bare trust – Explained in detail below.
Something to “bare” in mind
For many, the mention of the word "trust" brings to mind a picture of long winded legal documents, full of incomprehensible jargon. There is also the assumption that once money or assets are in a trust, no one can get at them without a great deal of effort and only after a long wait.
The good news is that this is not the case!
Trusts are actually very simple structures that only become complicated in unusual circumstances. The most simple of all is a "bare trust". For example, if a grandfather wishes to put money aside for his granddaughter, all he has to do is open an account or make an investment in his own name, and designate it as being for her. By doing this, the grandfather becomes a "bare trustee" and the money is no longer his to use as he is only looking after it.
This is an extremely convenient way of dealing with smaller gifts – a grandfather with three grandchildren could "give" each of them £1,000 each year, which would be within his annual allowance, without actually handing the money over. However, it must be remembered that the money legally belongs to the grandchild, and upon her 18th birthday she is entitled to it unconditionally. Whether she actually gets it then will depend on how good she is at winding grandpa round her little finger, but if he declines to hand it over she has the right to sue for it!
We can help with making a trust and our independent financial advice team can advise on the most appropriate type of investment – providing you with joined up thinking and advice.