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Guide to Trusts What is the role of the ? If you have assets that you want to set aside for your loved ones, you may consider setting up a They are able to deal with the trust assets as trust. legal owners of those assets.

Understanding the different types of trusts and Trustees will usually manage the trust on a day how they are designed to benefit you can to day basis like paying any tax liabilities of the sometimes be overwhelming. The aim of this trust, making decisions as to how best to invest guide is to provide you with clear, simple advice trust assets and how those assets should be as to whether setting up a trust is the right thing applied for the benefit of the beneficiaries. to do in your individual circumstances. What can be included in a Trust? What is a Trust? The assets within a Trust are known as the “trust A trust is a legal arrangement in which ‘trustees’ property.” are given a responsibility to deal with trust This can include; assets such as land, money or buildings. • Land You can put specific assets (money or property) • Buildings into the trust at the time of creation and/or • Money during your lifetime. You can add more to the • Investments trust whenever you like. Other personal property like jewellery or You can also set out in the trust deed exactly antiques can also be put into trust – these are what you want the trustees to do with the assets usually referred to as chattels. or you alternatively do provide guidance to the trustees in a separate document. Who benefits from the Trust? Commonly, trusts are set up in wills to manage The trustees hold this property on trust for one inheritance on a child’s behalf or during a or more “beneficiaries.” These can be a group of person’s lifetime for either tax purposes or to people who benefit from the trust as what is provide for an incapacitate/disabled . known as a “class of beneficiaries.” The beneficiaries have the benefit of the trust Why should I create a Trust? property. The amount of their benefit and Trusts can be used for a variety of situations. whether they benefit from the income or the These include; capital of the trust is dependent on the terms of the trust. • To protect your assets The person who makes a trust can also benefit • To make provision for children from the assets within their trusts and these are • To pass on your assets on your death known as “settlor-interested trusts” (see below • To obtain certain tax benefits for more information under “Other types of Trust”). • To provide for incapacitated/disabled persons Trusts commonly found in wills Before setting up any type of trust it is advisable to seek advice on the benefits of setting up such a trust, not only in relation to how you would like it to provide for the particular people or organisations you would like to benefit from it These trusts can still used by but also in relation to the potential tax businesses/individuals as a means of holding implications of such a trust. assets which could qualify for certain other tax reliefs. Trust: This is usually set up when the person making a will wishes to leave their Bare Trust: These are created to give the estate (usually the family home) to their spouse beneficiary an immediate right to the trust for the duration of the spouse’s life. The spouse assets. The beneficiary is entitled to take the will be entitled to the income generated from the benefit of the income and capital of the trust trust assets for life but will not be entitled to the assets at any time. capital value.

If there are children in the marriage, they could Other types of Trusts inherit the capital when the surviving spouse Settlor interested Trust: This is where the dies. settlor (the person setting up the trust), their spouse or civil partner can benefit from the The trustees may be given more flexible powers assets in the settlor’s own trust. to advance some capital to the settlor’s spouse under this type of trust should that spouse need The settlor can receive income from this trust, it during their lifetime. the trustees can accumulate funds in the trust on behalf of the settlor or the trustees can make Contingency trusts: This is usually a gift within certain payments from the trust fund to the a will dependant on the beneficiary attaining a settlor. certain age. Parental trust for children: These can be set Under this trust, the trustees have statutory up to provide for minor, unmarried children of powers to advance income and capital to the the person making the trust. beneficiaries. Strictly speaking, these are not trusts in their Discretionary Trusts: The trustees exercise own right but can take the form of a bare trust, a their discretion as to how the trust income and life interest trust, or a . capital should be used and how much should be advance to the beneficiaries at any given time. Trust for vulnerable people: A vulnerable beneficiary is usually either mentally or Nil Rate Band Discretionary Trusts: The Nil physically incapacitated or a minor who has one Rate Band (“NRB”) is the threshold for the deceased parent. These types of trust usually amount of money in your estate that will not be have tax advantages. subject to Inheritance Tax. The current NRB is £325,000. Any assets over this value are : This is usually set up to currently taxed at 40%. benefit a specific cause or purpose which will benefit a large amount of people. It is viewed as These trusts are less popular now following the a trust for the benefit of the public and as such introduction of the transferable NRB between has certain tax advantages, specifically in spouses. Spouses now automatically have the relation to income tax. benefit of each other’s NRB which means that they have a NRB between them of £650,000 Trust for business: There are many trusts that before any inheritance tax is payable. you can set up during the course of a business such as, employee benefit trusts and investment trusts.

Summary This guide is meant to be a helpful overview on trusts only. It is essential that you take legal advice on what type of trust will meet your own individual needs and intentions especially as the tax consequences of different trusts can be vary widely. If, having read this guide, you feel you would like to seek further advice on trusts you should contact us.

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Call us on 0208 492 2290 to discuss, free of charge, what we can do to help you. 43 Lodge Lane, North Finchley, London N12 8JG, Tel: 020 8492 2290, Fax: 020 8445 5376, www.gnlaw.co.uk, Email [email protected]