A trust is a legal arrangement to manage money or assets for the benefit of specific people. When you set up a trust, you decide who will be in charge of the trust (the trustees) and who will benefit from it (the beneficiaries).
Assets can still generate income once they have been placed in a trust. Properties can still charge rent, shares still collect dividends, and money can still generate interest. This income can either stay in the trust or be paid to beneficiaries.
Assets may increase or decrease in value while in a trust – it is the trustees’ responsibility to manage this in the beneficiaries’ best interests.
As such, trusts do sometimes have to pay tax. However, it can be more tax-efficient to put assets in a trust for the trustees to choose who should receive the income depending on beneficiaries’ circumstances.
The settlor is the person that establishes a trust by putting assets into it. This process is known as ‘settling’ the assets in the trust.
The settlor also decides who the beneficiaries of the trust will be and can place conditions on how the assets should be managed.
A trustee is a person or company that the settlor appoints to manage the trust and its assets. A settlor can appoint themselves to be a trustee and can also appoint successors to take over as trustee when they die.
Trustees must follow any instructions left by the settlor and can only use the trust assets in the beneficiaries’ best interests. Trustees have more freedom to make decisions in a discretionary trust.
A beneficiary is someone that the settlor chooses to benefit from the trust. They might receive an income from trust assets, inherit trust assets at a certain point in time, or be allowed to live in a trust property.
Settlors can be a trustee and beneficiary of their own trusts, and other beneficiaries can be trustees too.
You can choose anyone to be a beneficiary of a trust, such as:
- A specific, named individual
- A class of people, such as ‘my grandchildren and their descendants’
- A charity or charities
- Any other body of people, such as a company or sports club.
By choosing a class of people to be beneficiaries, you can include people who haven’t been born yet. This means your trust can help your family for generations to come
Beneficiaries can be trustees of the same trust they benefit from. It’s usually best to have at least one non-beneficiary trustee for discretionary trusts that give trustees a lot of freedom. This helps ensure that the trust is administered as the settlor intended.
To set up a trust, you need to include all the details about how the trust should be managed in a trust document. The trust deed should state:
- Who will be appointed as trustees
- Who will benefit from the trust
- Which assets will be put into the trust
- How you want the assets to be managed
- How you want benefits to be distributed
Our specialist solicitors can advise on any of these decisions and help you choose the most effective arrangements to best serve your beneficiaries.
Trust law can be complicated and the document must be very carefully worded to protect your assets as intended. With an expertly-written declaration of trust from our highly experienced team, you can ensure the outcomes you want.
Call us today on 0370 1500 100 to find out more about how we can help.
You can put any asset that you own into a trust, including:
- Land and real estate property – including family homes, investment properties, or agricultural estates
- Personal property – including art, jewellery, and other valuable heirlooms
- Financial assets – including money, stocks, and shares
- Life Insurance – you can instruct your life insurance policy to pay out to a trust
You can put assets into a trust during your lifetime or state in your Will that it should happen when you die.
