A family trust is still one of the best ways to protect your assets, (especially the family home) or put aside funds for your family’s future. However, the law of trusts can be complex; therefore, it is imperative to engage an experienced solicitor to set up your trust and ensure you understand the responsibilities a family trust entails.
A trust is an arrangement where a person (known as a settlor) gives power to a third party (known as a trustee) to hold property for the benefit of specifically appointed people (known as beneficiaries).
There are a number of reasons trusts are set up including:
Bare trusts – trust property and/or assets are held by the trustee and the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over (in England and Wales).
Interest in possession trusts – the beneficiary enjoys the income from the trust (less any expenses incurred).
Discretionary trusts – the trustee can make some decisions on how to utilise the trust income, and in some cases the capital.
Settlor-interested trusts – the settlor or their spouse is a beneficiary.
Non-residence trusts – where trusts are set up abroad for tax planning purposes.
The price of setting up and running a trust can vary greatly; however, your solicitor will advise and agree costs with you before they proceed with any instructions.
A trust deed is a document drawn up by your solicitor that sets out the specifics of the trust, including:
The trustees have a legal duty to manage the assets of a trust for the benefit of the beneficiaries. If there is more than one beneficiary, each individual must be treated fairly and equally. The trustees must act prudently and abide by the rules set out in the trust deed about how the trust should run.
Yes, but this has become more difficult to do since new rules were introduced in 2006. For example, if you make a gift to a trust and then die within seven years of the gift being made, the full 40% of inheritance tax on the gift must be paid when you die.
If you plan to set up a trust for inheritance tax planning, you will need to obtain legal advice.