What is a Trust – that is the Question?

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One of the questions we are often asked at Swansea Legal Solutions is what is a trust? A trust is a legal arrangement where nominated people hold and manage assets on behalf of another person or persons.

A trust , which will have a single or multiple beneficiaries, is when one person allocates assets (money, possessions, and property) to another person or persons to look after to benefit a third person.

Roles within a Trust

When making a trust for estate planning purposes, there are several roles as follows:

  • The settlor is the person who creates the trust
  • The beneficiary is the person/people that the trust is made for and the assets of the trust are held within the trust for the beneficiary’s benefit
  • The trustee is the person who is responsible for the assets of the trust. This person is granted ownership of the trust assets, which includes buying, selling and investing them

When assets are put into a trust, this means the settlor no longer own them.

Benefits of a Trust

When you set up a trust, you can choose how it is administered. The trust agreement will state what happens with any cash, property, or investments in the trust. A trustee has a legal obligation to care for and manage your estate on behalf of the beneficiaries.

A trust is beneficial if you want to leave assets to a beneficiary until they reach adulthood. For example, you may want your children to have access once they are sufficiently mature to manage the assets themselves. It can also help to reduce your Inheritance tax bill, although the law in this area is complex and you should always seek professional advice.

You can find out more about valuing your estate for Inheritance Tax and reporting its value on the government website here.

Types of Trust

The different types of trusts within the estate planning process which means you need professional advice on how to best structure a trust according to your personal circumstances. Basic trusts will have minimal costs, whereas a more complex trust may be more expensive. That’s why, if you are setting up a trust, you should speak to a professional to get advice on how to do this and so you can understand the associated tax consequences.

The most common trust types include:

  •  Discretionary trust – this trust means that the trustees have the final say in how the assets subjected to the trust are distributed to the beneficiaries you have named in the trust. This trust is very common as it provides protection to prevent beneficiaries inheriting money too quickly, or at an inappropriate time, and can provide a degree of tax mitigation.
  • Bare trust – this is the easiest and simplest trust. Any beneficiaries will be able to gain access to the assets within the trust once they reach the legal age of 18 in England and Wales. The beneficiary must also be deemed mentally capable, meaning this is not a correct trust for a vulnerable person.
  •  Life Interest trust – as stated in the name, the beneficiary is entitled to income arising from the investments in this type of trust, or to live in property held by the trust but they cannot access the property, investments, or cash that are generating income without the authority of the trustees.
  • Vulnerable person trust – this is a trust for a bereaved child (i.e. one created under the will or intestacy of a deceased parent) or disabled person can get special tax treatment. If the only beneficiary is a vulnerable person, they usually pay less tax.

If you would like to speak to a professional about setting up a trust, get in touch with Swansea Legal Solutions today on 01792 420844 or you can read more about our estate planning services here.