Trusts are becoming more popular in the UK, and many people consider setting up a trust to hold assets on behalf or for the benefit of another person.
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A trust can give you the opportunity to surrender ownership of an asset whilst at the same time retaining control of how, where, and when the money is used for the genuine benefit of the beneficiary.
Why Set up a Trust?
Trusts can be useful in a variety of circumstances, but there are two main reasons many people choose to set up a trust.
- For support: so their needs are looked after when you’re not around
- For children: safeguarding assets and finances for future generations.
- For protection: safeguarding assets from relationship or business breakdown
- For Family wealth management: helping with Inheritance Tax planning
If you have a child with a health concern or disability, for example, setting up a trust can be a useful way of making sure financial provisions are always put in place.
What Type of Trust?
There are many types of trust to look into, and your personal situation and circumstance will dictate which to use.
The most common type is a discretionary trust – both income and capital can be paid to one or more beneficiaries ‘at the discretion of the trustees’. If you are uncertain as to the needs of the beneficiaries, this may be the best trust to use.
There are also Wills trusts, life interest trusts, disability trusts, and personal injury trusts.
It can be confusing and complicated choosing which trust to use. It is essential that you speak to a trusted solicitor before you put any plans into action. A solicitor’s job is to make sure the stress is taken out of the situation for you.
All sorts of benefits are claimed for some trusts but which ignore consequences outside the trust – so proper all-round advice is essential.
How to Set up a Trust
Trusts need to be set up by an experienced trust solicitor, and it cannot be underestimated how important it is to tailor the right trust to your needs.
The legal wording needs to be precise – especially when it comes to choosing your trustees. Trustees are people who will look after the assets on behalf of the beneficiaries, and are usually close friends or family members who you can rely on. It is required to have at least 2 trustees, but think carefully about whom to choose and perhaps discuss the situation with your chosen individuals before putting their names forward. Your solicitor will be able to give you lots of advice about the role and responsibilities of trustees.
If you are offered a pre-printed trust form by e.g. an insurance company, make sure you understand it. Not all of them work as intended and often they have flaws that can be expensive to correct.
Who Chooses to set up a Trust?
Trusts are open to people in a wide variety of circumstances.
- Legacy for children or Grandchildren
- Planning wealth transfer within the family
- People in business
Trusts are often used to mitigate the effects of inheritance tax in the UK. Again however, significant advice is recommended so you know which trust is right for you.