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What
is a trust?
A trust is an obligation binding a person called a 'trustee'
to deal with property in a particular way for the benefit of one
or more 'beneficiaries'.
Settlor
The settlor creates the trust and puts property into it at the
start, often adding more later. The settlor says in the trust deed
how the trust's property and income should be used.
Trustee
Trustees are the 'legal owners' of the trust property and must
deal with it in the way set out in the trust deed. They also deal
with the trust administration. There can be one or more trustees.
Beneficiary
This is anyone who benefits from the trust. The trust deed may
name the beneficiaries individually or define a class of
beneficiary, such as the settlor's family.
Trust property
This is the property (or 'capital') that is put into the trust
by the settlor. It can include:
Examples
of when a trust might be created
A trust might be created in various circumstances:
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When
someone is too young to handle their affairs
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When
someone can't handle their affairs because they're
incapacitated
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To
pass on money or property while you're still alive
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Under
the terms of a Will
-
Where
there's no Will
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The
main types of private UK trust
Bare trust
In a bare trust, the property is held in the trustee's name -
but the adult beneficiaries can take both the income and trust
property whenever they want. You might, for example, use this type
of trust to pass gifts to children while you're still alive.
Interest
in possession trust
With an interest in possession trust, the beneficiaries have a
legal right to all the trust's income (after tax and expenses),
but not to the property.
You can, for example, set up an interest in possession trust in
your Will. You might then leave the income from the trust property
to your partner for life and the trust property itself to your
children when your partner dies.
Discretionary trust
With a discretionary trust, the trustees decide how much income or
capital, if any, to pay to each of the beneficiaries - but none
has an automatic right to either. A discretionary trust is a way
you can pass on property while you're still alive and still keep
some control over it through the terms of the trust deed.
Accumulation and maintenance trust
An accumulation and maintenance trust is used to provide money to
look after child beneficiaries when they're young. Any income
that isn't spent is added to the trust property, all of which
later passes to the grandchildren. This type of trust could be
used to fund the education of grandchildren.
In England and Wales the beneficiaries become entitled to the
trust property between ages 18 and 25. At that point the trust
turns into an 'income in possession' trust. In Scotland, the
trust usually ends when the beneficiaries reach 16.
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Mixed
trust
A mixed trust may come about when one beneficiary of an
accumulation and maintenance trust reaches 18 and others are still
minors. Part of the trust then becomes an interest in possession
trust.
Tax on UK trusts
Trusts, like limited companies, are taxed as entities in their own
right. The beneficiaries pay tax separately on income they receive
from a trust - at their usual tax rates, after allowances.
If
you would like to find out more and see if a trust arrangement
could be appropriate for your situation, please e-mail or contact
us for further information.
Levels and bases of, and reliefs from, taxation are subject to
change.
The Financial Services Authority does not regulate estate planning
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