What is a Trust?
A Trust is a relationship created by way of a Will or Trust Deed, in which one or more persons hold the individual’s property subject to certain duties to use and protect it for the benefit of others.
Trusts can be used to control the distribution of property either during lifetime or after death. There are many types of Trusts and many different uses and reasons for creation. A Trust may be created for the financial benefit of the person creating the Trust, a surviving spouse for minor children, or for a charitable purpose.
A trustee takes legal title to the Trust property which means that the trustee’s interest in the property appears to be one of complete ownership and possession, but the trustee does not have the right to receive any benefits from the property. The right to benefit from the property, known as equitable title, belongs to the beneficiary. This separation of legal and equitable ownership is unique to Trusts.
The terms of the Trust are conferred by the settlor on creation of the Trust and confirm the duties and powers of the trustee and the rights of the beneficiary. The law of Trusts is voluminous and often complicated and it is essential to take full advice when considering establishing a trust.
As well as providing a professional Trust drafting service for Asset Protection Trusts, Legacy Wills & Estate Planning also offer the complete range of Trusts to suit your individual needs including, but not limited to, Settlor Excluded Trusts used for inheritance tax planning, Life Interest Trusts, Pilot Trusts, and Trusts for vulnerable or disabled beneficiaries. Choosing the right type of Trust for you and your partner is crucial for estate, tax and retirement planning purposes. Speak to one of our experienced Trust & Estate Planning Consultants to see how we can help you.
Settlor Excluded Trusts
Settlor Excluded Trusts are Trusts set up to benefit someone other than the person setting up the Trust (the settlor), for example, the settlor’s partner or children. You can use Settlor Excluded Trusts to avoid IHT liability on your estate. Seven years after setting up the trust, the IHT liability for asset will be diminished. The asset will not form part of your estate which means your beneficiaries will not be liable for inheritance tax on the value of the asset when you die. The settlor in these Trusts is also the trustee, meaning you can still retain control of the asset, however, you will not benefit from the asset. Capital gains tax on the asset is not payable until the asset is finally sold or transferred.
Pilot Trusts are a way of avoiding inheritance tax when gifting to beneficiaries. Pilot Trusts are multiple Trusts set up by the settlor on different days with an initial nominal Trust fund of anything from £1, to be used at a future date, usually on the death of the settlor. End-of-life pay outs such as pension funds and life insurance can be arranged to enter the Trusts on the settlor’s death, and as each Trust is entitled to its own nil-rate band, it can serve to reduce inheritance tax liability substantially as the assets will not form part of the deceased’s estate. Unmarried couples can benefit from Pilot Trusts, as they cannot take advantage of the spousal exemption from inheritance tax.
Trustee Administration Services
The extent of a trustee’s responsibilities and the complexity of the role depends on the type of Trust and the assets held. For example, a ‘Discretionary Trust’ trustee is not only responsible for looking after the assets and making suitable investments but also responsible for deciding when to make capital and income payments to beneficiaries. Trustees are also responsible for declaring and accounting for tax on Trust investments.
In a ‘Bare Trust’, the trustee may have fewer duties to perform. Providing they are old enough, the beneficiaries decide how to use Trust capital and income and are responsible for declaring and paying any tax due however the trustees are still responsible for keeping good records and ensuring their statutory duties are complied with.
The person who set up the Trust (the settlor) may have given instructions that trustees carry out various functions. These may be contained within the ‘Trust Deed’ (or Will where a Trust was established on death), which outlines the terms of the Trust. Trustees are legally bound to act on these instructions and cannot deviate from these directions.
Understanding this complex area of law can be difficult and seeking professional advice or appointing a professional trustee is recommended. Our professional Trust & Estate Planning Consultants have many years’ experience in the field and offer a comprehensive Trust administration service for our clients. Contact us today to find out how we can help you.