What is a trust?
A trust is a legal arrangement where you give cash, property or investments to someone else so they can look after them for the benefit of a third person. For example, you might put some of your savings aside in a trust for your children.
There are two important roles in any trust that are important to understand:
Beneficiary – this is the person who the trust is set up for. The assets held in trust are held for the beneficiary’s benefit.
Trustee – this is the person who owns the assets in the trust. They have the same powers a person would have to buy, sell and invest their own property. It’s the trustee’s job to run the trust and manage the trust property responsibly.
What does a trust do?
If you put things into a trust, provided certain conditions are met, they no longer belong to you. This means that when you die their value normally won’t be counted when your Inheritance Tax bill is worked out.
Instead, the cash, investments or property belong to the trust. In other words, when the property is held in trust, it’s outside anyone’s estate for Inheritance Tax purposes.
Another potential advantage is that a trust is a way of keeping control and asset protection for the beneficiary. A trust avoids handing over valuable property, cash or investment while the beneficiaries are relatively young or vulnerable.
The trustees have a legal duty to look after and manage the trust assets for the person who will benefit from the trust in the end. when you set up a trust, you decide the rules about how it’s managed. For example, you could say that your children will only get access to their trust when they turn 25.
What types of trust are there?
There are several types of trust.
Setting up a basic trust might have minimal cost. While others are more complex to set up and would need more specialist advice, amking them more expensive.
Some trusts are subject to their own Inheritance Tax regime. So when the assets have successfully been transferred into trust, they’re no longer subject to Inheritance Tax on your death.
Others pay income and capital gains tax at higher rates. So it’s important to know what type of trust you have.
