A Trust is a legal relationship where property is held by one party for the benefit of another. The ‘settlor’ transfers some or all of their assets to a ‘trustee’, the trustee then holds that property for the Trust’s beneficiaries.
A Trust separates the property’s legal ownership and control from its equitable ownership (the right to use the property or receive any income it produces) which may be done for tax reasons or to control the property and its benefits if the settlor is absent, incapacitated or deceased. Trusts are often created as part of a Will to define how property will be handled for children and other beneficiaries.
The trustee is given legal title to the property but is obligated to act in accordance with the terms of the Trust, which usually means in the best interests of the beneficiaries. Trustees can be an individual or a Trust company. There can be a single trustee or up to four trustees for an estate.
What is a trust?
It is a legal way of managing assets for the benefit of different people .These assets can be money, investments,land, building or other assets.
Why set up a trust?
There are a number of reasons why a trust might be set up.
Trusts can be used to control and protect family assets. It may be that you wish to pass on assets whilst you are still alive. They can also be used to pass on assets when you die ( “a will trust”).
They can be used to ensure that your loved ones who you wish to benefit are protected and have financial stability for the future. They can be used for the benefit of someone who is too young to manage their affairs or is incapacitated such as children or grandchildren with learning disabilities and can be used effectively to release monies to them without it affecting means tested benefits.
They can be used to manage and control spending to protect beneficiaries from poor judgment and wasteful spending .They are popular with clients who are concerned that a beneficiary is financially extravagant and wasteful and will “blow the money” There are also those who set them up because they are concerned that the beneficiary will be badly influenced by others and give the money away to their so called friends or others you do not wish to benefit from your gift .They can be used to protect trust assets from creditors of the beneficiaries . Sometimes the motive can be to try to protect assets from the spouse of a beneficiary in the event that the beneficiary and spouse divorce.
Another common reason trusts are established is to pay for education for your children or grandchildren for instance school fees or university education.
There can also be tax reasons for setting up a trust. If the trust is set up at least 7 years before you die it is likely to fall outside your estate for inheritance tax purposes .it is however really important that you do take legal advice from a specialist solicitor before setting up a trust as with trust matters there can be unexpected tax issues which could result in you having to pay tax you had not appreciated would need to be paid in some circumstances.
Who do you appoint as a trustee?
You would normally appoint between two and four trustees. They need to be people who you can trust to be reliable and have good judgement. The trustees are given legal title to the property in the trust and although they are obligated to act in accordance with the terms of the trust and are required to act in the best interests of the beneficiaries, it is still most important to choose the right people to be your trustees to ensure that trust assets are looked after properly and that trust monies are used wisely for the benefit of your loved ones.
Yes, this is possible. If the property is jointly owned by you and your spouse, it is essential that the property is held as tenants in common rather than joint tenants. It is possible that if you leave your spouse a life interest in your half of the property and your spouse subsequently goes into a care home that only half the value of the house would be taken into consideration by the local authority when carrying out an assessment. It is essential that the life interest trust is properly worded in the will and you should ensure, for it to be done properly, that you consult a specialist solicitor.