After someone dies, part of winding up their estate involves settling all of their debts. As well as paying bills, there are expenses relating to their death, including funeral costs. When someone has died, their estate is liable for paying their...
What is a trust?
A trust is a legal arrangement under which a person gives someone else ( 'trustees') the job of looking after assets such as money, investments and property.
Why should I set up a trust?
If you set up a trust, your trustees will manage the assets for the benefit of the people you want to benefit (known as ‘beneficiaries’). Your beneficiaries will have the benefit of the assets without the responsibility of managing them.
Trusts are used for a wide variety of reasons and some of the most common situations where trusts are used are:
- to provide for a husband and wife after death while protecting the interests of any children, this can be particularly important for families where there are children from a previous marriages.
- to protect the inheritance of young children until they are old enough to take responsibility for their own affairs;
- to provide for vulnerable relatives who are unlikely to be able to look after their own affairs;
- to help succession planning in a family business.
Who can I appoint as trustees?
You can appoint between one and four trustees. You should appoint people you trust and who can cope with the responsibility and work involved. They could be family members, long standing friends or someone independent, like a professional, such as a solicitor or accountant. It is a good idea if one trustee is independent and not a family member or beneficiary of the trust.
Can I give my trustees direction?
You can tell your trustees what you would like them to do by leaving a Letter of Wishes. You can explain why you have set up the trust and how you would like the fund used. The letter is not legally binding but it is a useful guide for the trustees.
What are the trustees duties and responsibilities?
Trustees manage the assets of the trust on a day to day basis - making payments to beneficiaries, preparing accounts, investing fund money and paying any tax due. Sometimes trustees are closely involved in the day to day welfare of a beneficiary.
What is a settlor?
This is a person who puts assets into the trust, usually when the trust is created. It is the settlor who decides how assets and any income should be used.
What is a beneficiary?
This is anyone who may benefit from the assets held in the trust. Beneficiaries can benefit in different ways such as income only, capital only or both income and capital. Or the trust can be discretionary so that the trustees decide what beneficiaries receive and when. The trustees are able to make decisions based on the beneficiaries’ circumstances, taking into account the most tax efficient way of dealing with the assets.
What is the cost of setting up a trust?
The costs vary according to the size and complexity of the trust and we are happy to discuss costs and agree these with you. There are a number of different trusts and it depends on the individual circumstances as to what trust structure would be suitable and how much work may be involved.
A settlor should be aware that the Inland Revenue may require annual tax returns in respect of any trust set up that produces an income. There may also be entry and exit charges and 10 year anniversary charges.
What can be included in a trust?
This is often called 'trust property' and it can include money, investments, land or buildings. Personal items ('chattels') such as jewellery and furniture can also be included.