A trust is a legal arrangement that allows assets to be held and managed on behalf of beneficiaries by a trustee. Trusts offer a range of benefits, from avoiding probate to providing asset protection and tax advantages. Understanding the intricacies of trusts is vital for comprehensive estate planning. Our team of solicitors specialises in trust law and can guide you through the process to ensure your assets are protected and distributed according to your wishes. Schedule a consultation today to learn more about how trusts can benefit your estate plan.
When a ‘settlor’ transfers money, land, or other assets to trustees, a trust is created. The trustees are the legal proprietors of the property, but they are required to hold and manage the property for the benefit of a beneficiary or beneficiaries.
There are numerous varieties of trust.
Bare Trust
In this form of trust, which is sometimes referred to as a ‘Simple Trust,‘ the beneficiary has an immediate and absolute right to the trust’s property. The trustees have no discretion over the management of the fund. They must administer the trust assets to maximise the beneficiary’s benefit. The income of these funds is taxed as though it were the beneficiary’s income. The trustees of a Bare Trust for their offspring or grandchildren can be parents or grandparents.
Discretionary Trust
Here, the trustees have discretion over who should receive payments and when, as well as whether conditions should be affixed. Typically, they have discretion over the investment of the fund. Income accumulation may or may not be permitted for this form of fund. When it is feared that a beneficiary may behave irresponsibly if given assets outright, discretionary trusts are frequently used.
Accumulation and Maintenance Trust
In an A&M Trust, the settlor places funds in trust for his/her children/grandchildren until they reach a specified age (up to 25 years old), at which point they become entitled to the trust fund. A&M Trusts are used to support junior family members financially. Prior to 2006, they received favourable tax treatment, but now they are less “tax-friendly.
Trust of Interest in Possession (IIP)
Here, the beneficiary has access to the trust’s income but not its principal. A beneficiary may, for instance, be permitted to receive the income from shares during their lifespan, with the shares passing to their children upon their demise.
