A trust is, in the most basic terms, an agreement between three parties in which the ‘trustor’ or ‘settlor’ transfers a property (often but not always money) to the ‘trustee’ for the benefit of a third party, the ‘beneficiary’. A trust agreement sets out some terms to ensure that the trustee follows your instructions with the aim of benefitting the beneficiary.
While many trusts are ‘Testamentary’ (that is, arising after the death of the ‘Settlor’), there’s no reason why you shouldn’t create a trust to help manage your property while you’re alive, especially if you have expert help.
For example; imagine that you wanted a friend to look after some of your money and use it to pay for your care if you fell ill. If you just gave away the money, you would have no guarantee that your friend would use it to pay for your care. So, you set up a trust, and set out rules to ensure that your property is managed how you want.
In this example, your friend would be the Trustee, the money is the Trust Property and you would be the Beneficiary. However, there are a wide variety of trusts, and depending on the type, it may have to pay tax and the trustees may need to complete tax returns.
Types of Trust
Because of the variable nature of trusts, there are a wide variety of types, including:
- >Bare Trusts: Assets in a bare trust are held in the name of a trustee, but the beneficiary has the right to all the capital and income at any time when they reach 18 in England and Wales.
- >Interest in Possession Trusts: The Trustee passes on all trust income to the beneficiary as it arises (minus any expenses), though the beneficiary is not entitled to the Trust Property itself.
- >Discretionary Trusts: These trusts allow the trustee to make certain decisions on the trust income and capital at the discretion of the trustor.
- >Accumulation Trusts: Trustees can accumulate income within the trust and add it to the trust’s capital, or pay out income, depending on the terms.
- >Mixed Trusts: Combinations of more than one type of trust. Rules and regulations vary greatly.
- >Settlor-Interested Trusts: These are trusts where the settlor or their spouse/partner benefits from the trust.
- >Non-Resident Trusts: Trusts where the trustees are not UK residents. The tax rules and regulations can prove very complicated.
Setting Up a Trust
As trusts are legal agreements that may persist after your death, you need to be sure that they are written in a clear, precise and legally valid manner. We recommend that you have a qualified legal professional proof-read your Trust Agreement at the bare minimum.
A vital stage in any trust agreement is appointing the trustees. Most people choose from their family and friends – people you can trust and rely on – though you could also appoint a company as your trustee. Be warned that companies will likely charge fees for overseeing your Trust, even if they are better equipped to deal with paperwork and complications.
You should have at least two trustees, but probably no more than four unless you feel that the size or complexity of your Trust Property demands it. Make sure that you notify your intended trustees and gain their consent, as this is a lot of responsibility.
For professional, personalised advice and guidance from Trust specialists, contact Knightsbridge Solicitors today. Our experienced specialists can guide you through every step of the process, from writing a first draft to implementing your trust.
To learn more or book a consultation for any of our Trust services, contact us on 0115 824 1700 or fill out an online form today.