What is a Trust?
A trust is a legal arrangement used for managing assets. There are different types of trust and they all operate slightly differently and are taxed in different ways. Hepburn Delaney’s specialist trust solicitors can provide you with expert advice on whether trusts are appropriate for you.
A bare trust is a simple trust where trustees hold assets on behalf of someone else. However, the beneficiary of the trust remains the owner of the assets and they have an absolute right to the capital and any income generated by the trust. A bare trust is often used to hold assets for minor beneficiaries who are not able to hold the legal title to the assets themselves.
Life Interest Trusts
Life interest trusts are commonly used to protect assets. Normally the beneficiary of the trust, called the life tenant, has the use of the trust assets during their lifetime, and on their death, or the earlier ending of the trust, the assets pass to a named third-party beneficiary, called the remainderman.
Life interest trusts are often used in Wills in second marriage situations where each spouse may wish for the other to have a right to stay living in their house for the rest of their lifetime, but on their death the first to die share of the property should pass to their children from the first marriage.
Life interest trusts can also be used in Wills by couples as an effective means of planning for residential care. When the first person dies, they can leave their assets into the trust. The survivor has the right to benefit from the income of the assets during their lifetime but the capital value is protected by the trust. If the survivor needs to go into care, because they do not own the trust assets themselves, they should not be taken into account by the Local Authority when considering a funding assessment.
Discretionary trusts are also used to protect assets and they provide a great deal of flexibility. The way a discretionary trust operates is that there is a pool of “potential beneficiaries”. This is a group of people who are all capable of benefiting from the trust but none of them have any absolute entitlement to the trust fund. The trustees of the trust have absolute discretion as to how they manage the trust fund, who they use the money to benefit and when.
The person creating the trust (the Settlor) will normally prepare a letter which sits alongside the trust to provide guidance to the trustees on how the trust should be managed. These types of trusts provide a great deal of flexibility and allow the trustees to assess the circumstances of each beneficiary at a particular time and ensure that the best use is made of the trust fund.
Taxation of Trusts
Taxation of trusts can be quite complex and different types of trusts are taxed differently. Bare trusts are usually taxed on the beneficiary of the trust at their own marginal rate, so the beneficiary would, for example, declare any income from the trust assets on their own tax return.
Life interest and discretionary trusts are taxed under the relevant property regime. This is quite a complex set of rules which govern the taxation of the trusts and normally it is the trustees who are responsible for dealing with tax returns and paying tax due on the trust. Trusts also pay tax at different rates to individuals so it is essential to take professional advice when creating a trust to ensure you understand all the tax implications.
How can we help?
Our specialist trust solicitors are experts in the drafting of all types of trusts and can guide you through the process, be it creating a trust during your lifetime or in your Will to protect assets after your death.
If you are a trustee and need advice in relation to your obligations or the effective running of the trust, our team can advise you on your responsibilities and all aspects of the trust administration.
Contact our specialist trust solicitors
To get in touch with our trust solicitors, please:
Call us on 01442 218090
Send an email to firstname.lastname@example.org
Fill out our enquiry form and speak to one of our Trust Solicitors.
HOW CAN WE HELP?
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