What Is a Trust?
A trust is a way of managing assets like money, property, or shares, where someone (the trustee) looks after them for the benefit of someone else (the beneficiary). The person who sets up the trust and provides the assets is called the settlor.
Why Set Up a Trust?
There are many reasons to set up a trust, such as:
Protecting family assets
Helping someone who is too young or unable to manage their finances
Passing on assets during your lifetime or after you’ve passed away
The Role of a Settlor
The settlor decides how the trust should be managed. This is usually set out in a legal document. In some cases, the settlor can also benefit from the trust, but special tax rules apply to these types of trusts.
What Trustees Do
Trustees are in charge of managing the trust. Their job is to:
Follow the instructions of the settlor
Handle the day-to-day management, including paying any necessary taxes
Decide how best to use the assets
Even if trustees change, the trust continues, but there must always be at least one trustee.
Beneficiaries
Beneficiaries can be one person or a group of people, such as family members. They may receive income, assets, or both from the trust.
How to Set Up a Trust
You can set up a trust in your lifetime, or include one in your Will. Choose trustees you trust, and make sure they agree to take on the responsibility. You usually need at least two trustees, but you can appoint up to four.
Types of Trusts
There are different types of trusts, depending on your needs, these include:
A Simple Trust
Beneficiaries receive the assets once they turn 18.
Income Trust
Beneficiaries receive income from the trust but don’t control the assets.
Flexible Trust
Trustees decide how and when to give assets to the beneficiaries.
Vulnerable Person’s Trust
Designed to support someone with a disability or a dependent, with tax benefits.
Taxation
Trust taxation can be quite complex, as different types of trusts are subject to different tax rules. Trustees may need to pay income tax, capital gains tax, or inheritance tax, depending on the trust’s structure and how its assets are managed. The tax treatment can also vary based on who benefits from the trust and when. Seeking professional advice is essential to ensure compliance and to make the most of any tax efficiencies available.
There are many details that need to be explored when considering setting up a trust and the advice given in each individual case is tailored to personal circumstances.
Please speak to us, if you wish to explore more about using trusts.
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