What is a Trust
Trusts are more common than people think and they’re not just for the super rich in fact some of the most common services in the UK are trusts. The National Trust, HNS and most charities take advance of the amazing benefits of a trust.
Trusts are common around the world, but they’re most popular where the countries legal system is based on the English legal system. Each Country will adapt the trust law to suit their needs so that the technical details will vary. Our expert Trust team will help you make the right choice when in comes down to deciding where to base your trust.
The Concept of a Trust is a simple one and can be described as follows
A trust is the transfer of assets; These assets are held by a group of people or trust company with a set of instructions to keep the assets for the benefit of others.
The assets can be anything you like, but they mainly hold property, cash, art or shares in other companies.
There are three main parties in a trust
- The Settlor – this is the person or party which is giving the assets
- The Trustee – this is the group of people or trust company who has been asked to look after the assets
- The Beneficiary – this the person or people who will benefit from the trust
All trust will have an arrangement related to how the trust is managed; this is called a Trust Deed
Most people think that the legal owners of assets are the trust but the trust cannot own assets, so the legal owners of the assets are the trustees. While this might alarm a lot of people, the trustees are legally bound to work at all times in the best interests of the beneficiaries and can not place their interests above that of the beneficiaries. This is also said for the settlor, while they can also be a trustee they have to work in the interest of the beneficiary.
Trust can be formed at any stage during the lifetime fo the settlor (there is a small window after the death of the settlor)
Why use a trust?
Trusts are incredibly common, and we use them every day. As mentioned the NHS is a body smaller trust, Most of the workplace pensions are based around trusts. The reason why trusts are so popular are they work, and they provide administration, regulation and taxation clarity.
It’s not the only Pension which takes advantage of trust, Most Life insurance policies have been “Written in Trust“. What is means is once the holder of the policy passes away the policy is paid out into a trust and them-they the trustees will distribute the policy fund in line the insured person wishes.
The Charitable sector is a massive user of trust, though foundations have become more popular over the past ten years. While many large high street charities use trust, there are a large number of smaller trusts and foundations set up to focus on a smaller project. Trusts are very powerful for this giving, since the Settlor and set the desired outcome of the trust for example Lung Cancer research it’s up to the trustees decides the best way for assets in the trust to be used to reach this desired outcome. In many cases, experts will be added as a trustee to make sure they have all the tools in places. The flexibility in a trust is ideal for anyone making long-term commitments.
The cases above show some of the uses of trust the most common use of a trust is to arrange the family assets. Trust are brilliant when it comes to the financial affairs of a family as it all the settlor to have greater confidence on how the assets will be used and put to use. Since the trustee has to work for the benefit of the trustee and the settlor decides who the trustees are the settlor will have 100% confidence that their wishes for their estate will be followed. There is a form of trust called discretionary trusts that be set up for people who aren’t even born.
Common uses for a family to use a trust
- To hold an inheritance for people who aren’t old enough to responsibly look after their affairs
- To provide for individuals who aren’t able to look after themselves
- To pass a family business to other generations
- To leave money to children once there has been a divorce or second marriage
How secret are Trusts
Due to the personal nature of a trust, most people would expect their trust agreement to be kept confidential, Often the beneficiaries of the trust will not know about the trust.
While the details of trust are confidential from most people, many jurisdictions require trusts to submit and tax return and are they are subject to tax. This is not the case for all jurisdictions, but ThomTax will help you with this.
Taxation and Trust
While it’s common to think that trusts are just a means to avoid tax there aren’t many situations where it’s advisable to set up a trust just to gain tax advantages. Setting up a trust is a big step, as the settlor giving away their ownership of their assets to someone else. While the tax advantages do help this decision, the settlor must have a clear outcome they want to achieve by places the property into the trust.
While the tax benefits of the trust are decreasing, there are still many taxation benefits to using a trust. Talk to one of our team to discuss this.
There are many countries which offer tax advantages to trusts but is a lot of cases they’re focused on trusts that are set up to do social good. This may be a charitable trust or foundation for research, but they’re also available to trust that benefit vulnerable or disabled relatives.