Trusts

Trusts

What is a trust?

A trust allows someone to pass assets on to their chosen beneficiaries whilst retaining control over the assets within the trust. They can typically be used for money, investments, land or buildings.

A letter of wishes is generally prepared to give guidance to the trustees regarding how the trust is to be managed and the circumstances in which capital and income can be advanced to a beneficiary.

How does a trust work?

This depends on the type of trust, the beneficiary may receive a fixed interest, such as a right to occupy a house or a right to income, but it may be discretionary.

If a beneficiary’s interest is at the discretion of the trustees, it means the beneficiaries of a trust are generally not automatically entitled to receive anything. Rather, income and capital can be paid out to them if the trustees agree to do so.

A trust deed is created, outlining the parties involved and the purpose of the trust. A letter of wishes is also prepared to give guidance to the trustees regarding how the trust is to be managed and the circumstances in which capital and income can be advanced to a beneficiary.

Assets are then transferred as necessary and the trust registered with HMRC.

Who is involved with a trust?

There are typically three parties in a trust:

The ‘settlor’ – the person/people who puts assets into a trust.
The ‘trustees’ – the people who manage the trust.
The ‘beneficiary’ – the person who benefits from the trust.

Lifetime Trusts/Settlements

A lifetime trust can be a useful estate planning tool by making use of the rules for gifts to reduce the size of the settlor’s estate for inheritance tax purposes.

For example, if a settlor no longer financially needs to own a second home, they can put it in trust in their lifetime. If they survive seven years from the day on which the property was transferred to the trust, it should fall outside of their estate for inheritance tax purposes. This will mean that the value of the house will not be included when calculating the size of the settlor’s estate once they have died, thereby reducing their inheritance tax liability.

When is a lifetime trust used?

For estate planning in lifetime to reduce an inheritance tax liability.
Where there is a beneficiary who cannot manage their affairs, due to incapacity or being under the age of 18.
To preserve assets within a family.
To pass on assets when you die via a Will.

Discretionary Trusts

A discretionary trust can be made in lifetime or via a Will.

A class of beneficiaries is included within the trust, such as children or grandchildren. The effect is that no beneficiary is entitled to receive anything but rather the trustees decide when income and capital should be advanced to them. It is advisable for a letter of wishes to be prepared to guide the trustees on the circumstances and situations in which monies can be advanced.

When is a discretionary trust used?

For estate planning in lifetime to reduce an inheritance tax liability.
Where there is a beneficiary who cannot manage their affairs, due to incapacity or being under the age of 18.
To preserve assets within a family.
To keep the distribution of an estate/asset flexible.
To retain control over the assets held in trust.
To pass on assets when you die via a Will.

How does a Discretionary trust work?

A discretionary trust means the beneficiaries of a trust are generally not automatically entitled to receive anything. Rather, income and capital can be paid out to them if the trustees agree to do so.

It is incredibly important that the trustees who are appointed are reliable and that the settlor trusts them implicitly.

Assets are then transferred as necessary and the trust registered with HMRC.

Life Interest Trust

A Life Interest trust is made via a Will.

Such a trust is particularly useful in the case of second marriages and blended families. For example, it allows the testator to allow their current spouse to live in a property for their lifetime and when the spouse passes away, the property reverts to the children of the testator. This still makes use of the inheritance tax advantages that are applied to such estates, whilst ensuring that the property does not pass via the Will of the current spouse.

This would be the case without the life interest trust, because the asset would be passed outright to the current spouse and consequently be passed on via their Will when they die.

When is a life interest trust used?

Estate planning in Wills to reduce an inheritance tax liability.
Where there is a beneficiary who cannot manage their affairs, due to incapacity or being under the age of 18.
To preserve assets within a family.
To pass on assets when you die via a Will.
To provide for a spouse yet ringfence assets for children.

How does a life interest trust work?

The beneficiary may receive a fixed interest, such as a right to occupy a house and/or a right to income.

A trust is created within a Will, outlining the parties involved and the purpose of the trust. A letter of wishes is also prepared to give guidance to the trustees regarding how the trust is to be managed and the circumstances in which capital can be advanced to a beneficiary if required.

Assets are then transferred on death and the trust registered with HMRC.

Disabled Child Trust

A Disabled Child trust would generally be made via a Will.

Such a trust would be applicable whereby a testator wishes to leave money to a disabled child. It is a specific type of trust set up for a person who falls within the legal definition of “disabled”.

Such a trust ensures that the beneficiary is protected from financial abuse and is also taxed more favourably than other types of trust.

When is a disabled trust used?

Where there is a beneficiary who cannot manage their affairs, due to incapacity.
To preserve assets for the disabled child.
To pass on assets when you die via a Will.

How does a disabled child trust work?

The trustees decide how the funds within the trust are used to benefit the disabled child. It should mean that their means-tested benefits are not affected.

Assets are then transferred as necessary and the trust registered with HMRC.

How does the process work?

You are invited to a meeting to discuss your wishes which we can conduct via video conferencing. We are equally happy to discuss matters over the telephone or by email. Alternatively, we can meet at our office or your home, if that is more convenient for you.

We shall draft the trust deed or Will trust in accordance with your requirements and send it to you with a full letter of advice. Once you are happy, it can be prepared ready for signature and the settlor and trustees will need to sign it. We are able to store trust deeds in our firm’s storage facility for safekeeping, which we do at no extra cost and we will also provide a signed photocopy for your own records.

How long is the legal process?

We normally aim to send a draft trust deed or Will trust to you within a fortnight of our initial meeting but if there is particular urgency, we can prepare the document more quickly.

Is it expensive?

We are usually able to provide a fixed fee service for the drafting of most trust deeds and any consequent work, such as the transfer of assets. Please call us on 020 8858 6971 or email privateclient@grantsaw.co.uk for a quotation.

What are the things people should consider before calling?

You should consider the following:

Who you would like to appoint as your trustees. That is the person(s) appointed to manage the trust. The Partners at Grant Saw can be appointed as trustees, if required.
Who the beneficiaries of the trust will be and the circumstances in which monies can be advanced to them.
It would also be helpful if you could provide us with a rough estimate of the value of your assets so that we can provide you with any relevant inheritance tax advice.

Why are Grant Saw the best people for the job?

We are the largest private client department in the local area and have a number of dedicated specialists in the team. As a department, we pride ourselves on providing excellent client service, with a friendly and approachable manner and we are frequently instructed by new clients based on recommendations received from our existing clients. We also hold the Law society accreditation for excellence in Wills and Probate, known as WIQS (Wills and Inheritance Quality Scheme), as well as having members of Solicitors for the Elderly and STEP in the team. These are all demonstrative of the expertise and dedication our lawyers have in making sure our clients receive the best advice possible.

Meet the Private Client team