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Trusts are a way of looking after assets for people.
A trust is a legal arrangement where one or more ‘trustees’ are made legally responsible for holding assets.
The assets – such as land, money, buildings, shares or even antiques – are placed in trust for the benefit of one or more ‘beneficiaries’.
The trustees are responsible for managing the trust and carrying out the wishes of the person who has put the assets into trust (the ‘settlor’). The settlor’s wishes for the trust are usually written in their will or set out in a legal document called ‘the trust deed’.
Trusts may be set up for a number of reasons, for example:
There are several types of UK family trusts and each type of trust may be taxed differently. It is always advisable to take professional advice to ensure that you are fully aware of any potential liabilities.
‘Trust property’ is a phrase often used for the assets held in a trust. It can include:
A settlor is a person who has put assets into the trust. This is known as ‘settling’ property. Assets are normally put into the trust when it’s created this can be on death, via a Will or during your lifetime. Often as part of a tax planning exercise you may wish to move assets out of your own estate into a separate Trust, it is, depending upon the terms of the Trust, possible for additional assets to be added at a later date.
The settlor decides how the assets in the trust and any income received from it should be used. This is usually set out in the trust deed.
Trustees are the legal owners of the assets held in a trust. Their role is to:
The trust can continue even though the trustees might change. However, there must be at least one trustee. Often there will be a minimum of two trustees. One trustee should be a professional familiar with trusts – a solicitor, for example – while the other may be a family member or relative.
A beneficiary is anyone who benefits from the assets held in the trust. There can be one or more beneficiary, such as a whole family or a defined group of people. Each beneficiary may benefit from the trust in a different way.
For example, a beneficiary may benefit from:
If you’re a beneficiary you may have extra tax to pay or be entitled to claim some back depending on your overall income.
Get professional help for your trust
Understanding trusts can be difficult so you should consider working with a solicitor or tax adviser to ensure that the Trustees act in the best interests of the Trust.
It should be remembered that the trustee is still legally responsible for the handling of the Trust and in particular its tax affairs.
Whether you are thinking of creating a Trust or are acting as a Trustee already it is important to fully appreciate the role and the implications of your actions on the Trust and your own personal liability. Taking legal advice should be considered a legitimate Trustee expense.