Making a Trust

What is a trust?

A trust is a
formal transfer of assets (it might be property, shares or money) to a small group of people (usually two or three) or to a trust company with instructions that they hold assets for the benefits of others.

If the trust is to be made in your lifetime, to take immediate effect, then it is usually evidenced by a trust deed and often referred to as a “settlement”. If it is to be created on or shortly after your death then the trust rules must be set out in your will, known as a “Will Trust”.

What does a trust do?

Whether by lifetime settlement or by will, the trust document states who are responsible for looking after the gifted assets
(the trustees), who are to benefit (the beneficiaries) and any rules or conditions which the trustees and beneficiaries must adhere to. The separation of the legal ownership and beneficial ownership, which were once inseparable, is the unique characteristic of the trust concept whereby the trustees are the legal owners but the beneficial owners are the beneficiaries.

How long should a trust last?

How long a trust shall last is entirely as you think appropriate but you must stipulate the trust period in the trust document. It may be just a few years, perhaps during a person’s widowhood or until a child attains a certain age or marries. If you are creating the settlement in your lifetime then you can appoint yourself and your spouse as trustees if you so wish so that you remain in control of the assets and decision making.

Why make a trust?

Throughout their history, trusts have been used to avoid or address problems in two main areas -

1) Taxation

2) Family Matters

Making a trust for taxation purposes

In your lifetime you can create a trust into which you can place chosen assets which you no longer need yourself. This reduces your own wealth and thus your exposure to inheritance tax - or maybe even wealth tax should that become a reality.

By creating a discretionary trust in your will for the benefit of your spouse and children, you can take advantage of the nil rate band of inheritance tax , consequently making considerable savings against tax.

With further advice being available from our in-house independent financial advisers, we can also provide advice on how best to ensure any assets or cash legacies are protected or invested to the advantage of the beneficiary.

Making a trust for domestic reasons

There can be many reasons for creating a trust for domestic reasons. Some examples are given overleaf.

Example 1

You might be fearful of losing mental capacity or that your possessions will be taken over by Government Agencies or even fortune hunters.

Solution

You could place your assets (say your house) in trust for yourself for life so that only the trustees you have chosen can deal with them according to your wishes rather than the Court of Protection or Social Services.

Example 2

Parents, grandparents and others have always been concerned that children and grandchildren are at risk if they receive or inherit too much too soon

Solution

Create a trust to hold the assets until the children are older and wiser

Example 3

You might currently have an aged dependant – a widowed mother perhaps or retired housekeeper who would need continuing care should you die before her.

Solution

A trust can be created to hold sufficient capital to continue the help.

On her death the funds can return to you or pass to your family.

Example 4

Your son or daughter might risk bankruptcy or an unstable marriage or other relationship, be handicapped and in need of special care or for some other reason be incapable of managing their own financial affairs.

Solution

In any of these situations, shares, cash, property or other forms of wealth can be placed into a suitable trust carefully worded to take account of the perceived risks surrounding the intended beneficiary.

What types of trust are there?

Most trusts fall into one of two main categories depending on how the income or benefit is dealt with. These two main categories are –

1) Interest – in – Possession Trusts

2) Discretionary Type Trusts

There are three main types of discretionary trusts, all of which give the trustees the power to make gifts of capital and or income to a stated class of potential beneficiaries.

Copyright 2004, Blackett Hart & Pratt Solicitors

We cannot stress enough how important it is for you to have your own Will.

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For complete peace of mind, be sure you consult specialist lawyers like ourselves who have the skills and experience to help you in this area of the law.
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Our Wills, Trusts and Probate Department prides itself on the caring and confidential service it provides. We offer an efficient will drafting service at a very competitive price. We are also able to provide practical advice about appointing executors, handling your estate and reducing inheritance tax.

Thousands of people die in this country each year without leaving a Will. Many of them will have left their family and friends, quite unintentionally, with legal problems that could take months, or even years to sort out. Making a will is an important part of planning for the future and is especially important if you have recently married or separated from a partner, become a homeowner or a parent.

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