The use of Trusts can be a very useful tool for many reasons. There are different types of trusts that are suitable for different situations. The type of trust that you may have depends upon a person’s aims and objectives. A trust can be used to provide more control over assets during your lifetime or on death. A trust can also help to mitigate inheritance tax, the need for obtaining probate and to allow your Trustees to continue to manage assets in a trust if you ever lose capacity in the future.
What are Discretionary Trusts?
This is a very flexible type of trust arrangement. It names a class of beneficiaries who can benefit from the capital and income from the trust but ensures that none of the named beneficiaries have an absolute right to the assets held in the trust. It is important with this type of trust that you appoint sensible and trustworthy Trustees as any monies released from the trust and paid to the beneficiaries will be at the Trustees’ discretion.
This type of trust is useful to protect vulnerable or frivolous children from spending all of their inheritance. The assets can be retained in the trust until the Trustees agree on an appropriate time to pay the assets in the trust to the named beneficiaries. The Trustees can release monies from the trust to pay for a child’s maintenance, education, school trips etc. This type of trust can also protect assets from being brought into any future divorce proceedings.
It is important with this type of trust to have a detailed letter of wishes which sets out to your Trustees how you want the trust to be managed and when the trust can be wound up.
What are Life Interest Trusts?
This type of trust allows a nominated beneficiary (called the Life Tenant) to receive the income generated by the trust. The Trustees have no control over the income generated as the Life Tenant has a legal right to receive the income and this must be paid to the Life Tenant. There are stipulations that can be stated within the trust so that the Life Tenant’s right to the income either ends on their death or sooner if required. The Life Tenant has no right to the capital unless an express power in the trust provides the Trustees with power to advance capital but this would be at the Trustees’ discretion only and the Life Tenant cannot demand access to the capital. When the Life Tenant’s interest comes to an end, the capital can be paid out to the remaindermen (the beneficiaries named in the trust) outright and this will bring the trust to an end.
What are Bare Trusts?
This is the simplest form of trust where a trustee holds property on behalf of a beneficiary. The beneficiary becomes absolutely entitled to the trust’s property and any income it has generated at the age of 18. For example, a parent can hold an asset for their child as a bare trustee until that child attains the age of 18.
How do I set up a Trust?
You will need to speak to one of our specialist trust lawyers to discuss your objectives and the most appropriate type of trust suitable to your needs.
