A brief introduction to trusts.
A trust is a way of managing assets, movable (savings, investments) or immovable (land, property), for the benefit of a third party, the beneficiary.
It is a legal and financial arrangement which can be used during a person’s life, or as a tool to help manage their affairs once they pass . Tax implications should be discussed with an estate planner or a financial adviser prior to taking action.
The parties involved in this relationship are:
-The settlor: the person who decides which assets to include in the managed fund and how these should be used. The document which sets out the guidelines is called a ‘Deed of trust’.
-The trustee: the person left in charge of the management of the fund. The trustee’s responsibility is to manage the assets, to pay the tax due and to invest the capital following the deed’s terms.
-The beneficiaries: the people who would benefit from this arrangement. Depending on the type, the beneficiaries may benefit from the income of the assets, the capital, or both.
Some of the reasons to set up a trust could be:
-To protect family assets from future unforeseen expenses (i.e. long-term care costs).
-To manage assets intended for the benefit of minors, or vulnerable loved ones.
-To transfer assets while you are still alive.
-To pass on assets when you die (‘Will trusts’).
A brief example of different types of trusts would include:
-Bare trust: This is often used to pass on assets to minors. A person can inherit only if they are over 18 under UK law. This allows someone to look after the estate for the benefit of the minor until that person is old enough to inherit.
-Interest in possession trust: All income from the trust assets must go to the beneficiary.
-Discretionary trust: This allows the trustees to make certain decisions when it comes to the capital and the income of the fund. Depending on the type of trust these decisions could include who receives what and when, as well as conditions to impose on the beneficiaries in order to gain benefit from the trust.
-Settlor-interested trusts. With these the settlor benefits from the managed fund. The purpose is to protect and manage movable or immovable assets on behalf of the settlor.
This is not meant to be a complete list. Trusts can be very useful tools, depending on the purpose they serve but it is important to seek professional help before proceeding with such arrangements in order to establish any potential tax implications.