Why should I set up a Trust?
Our team will take the time to listen to your needs and objectives and advise on a model that best fits. That might involve protecting a capital sum for distribution to your beneficiaries in the future – but it might also mean using all or part of the capital as an income to those beneficiaries. Trusts are complex instruments and care and experience are required to draft them properly.
There are a number of different types of vehicles which can be used to achieve these ends and which include the following:
- Bare Trust
- Discretionary Trust
- Bare Trust
- Inheritance in possession Trust
- Accumulation Trust
- Mixed Trust
- Settlor-interested Trust
- The importance of choosing the right trust
Speak to a member of our team
Bare Trust
also known as a Simple Trust, this enables the beneficiary to gain absolute rights to all the assets contained in the Trust and the income generated from those assets. They are often used to leave property to a beneficiary when they reach 18.
Discretionary Trust
allows the Trustees to make decisions on how the capital/income is distributed to the Beneficiaries. A Discretionary Trust is often used where there is one Beneficiary who has more pressing financial needs than the others, perhaps due to a disability. These vehicles have the significant benefit of being very flexible in providing for a group of beneficiaries, especially where it’s not clear what kind of financial help will be needed in future.
Discretionary trusts are also particularly useful when the settlor has identified someone who is likely to be the main beneficiary, but is uncomfortable about putting the assets completely under the control of that person – perhaps if the beneficiary is bankrupt or in danger of becoming bankrupt, is going through divorce (and there is a wish to avoid the risk of assets passing to a former spouse) or the beneficiary is disabled in some way and will need assistance in looking after the money.
How much discretion trustees have to make payments depends on how the trust was drafted. The downside is that you lose control over the ultimate destination of the assets.
Among the powers trustees may be given under a discretionary trust are the ability to decide the following:
- the level of capital or income to pay to the beneficiary
- which beneficiary to pay
how often such payments are to be made
Inheritance in possession Trust
these are often known as “life interests trusts”. With these, the capital is held in Trust, and the income (less expenses) is passed to the Beneficiaries. Unlike a Bare Trust, the Beneficiary cannot normally access the capital. However, dependent on how the particular trust is drafted, trustees could have the authority to grant a capital sum to the beneficiary, even if in theory that beneficiaries is only entitled to income from the trust.
This is a useful vehicle for ensuring a spouse is supported with a regular and reliable stream of income following a Settlor’s death, whilst, at the same time, preserving the capital for future generations.
Accumulation Trust
this allows the Trustees to accrue income and add it to the fund’s capital assets. These kind of vehicles are usually used to allow capital to be built up until the beneficiary is legally entitled to the assets of the trust
Mixed Trust
allows for different types of all the Trusts listed above, in accordance with the tax rules applicable to each.
Do I need a solicitor to create a Trust?
Settlor-interested Trust
allows the Settlor or their spouse or civil partner to benefit from the fund. This type of fund can be used to provide for the possibility of the Settlor being unable to work for a period of time.
Importance of choosing the right trust
With so many different types of trust available, it’s really important to make sure that you create the right one for your own personal circumstances. So, for example, transferring your assets into certain types of trust means that they are no longer subject to Inheritance Tax on your death. In contrast, other types of trust may end up with a higher rate of income or capital gains tax.