Whilst many people are generally aware of the existence of legal arrangements known as trusts, it is fair to say that often the concept is not always fully understood, appearing complex or even somewhat mysterious.
In reality, the basic principle of a trust is simple; it usually involves one or more individuals called trustees holding an asset (such as a house or some money) for the benefit of another called a beneficiary. So, for example, if money is left to someone in a will but they are still a child when the person making the will dies, the money will have to be legally looked after by the trustee appointed in the will until the beneficiary reaches the appropriate age. Although the trustee will have legal control of the money in this example, it will not belong to them so they cannot do as they please with it. They must always act in the beneficiary’s best interests.
Trusts can be and are often more complicated than the example given, but the fundamental principles always remain the same. The trustees are looking after assets for one or more beneficiaries. When doing so they must follow the terms of the trust, which are often set out in a legal ‘rule book’ called the trust deed. This ‘rule book’ can be created by someone during their lifetime or upon their death in their will.
But why create a trust? Why not just let the beneficiary legally own the asset if they are the ones to benefit from it? There are several reasons why a trust is used, which include the following;
1. As in the example above, the beneficiary may not be old enough or have the mental capacity to hold the asset themselves.
2. The beneficiary may not be trusted with the assets – for example they may have a substance or gambling addiction and would squander the money or put themselves at risk if they could do as they wish with it.
3. The beneficiary may be at risk from third party claims from creditors or upon bankruptcy or divorce.
4. A trust can be used to ensure assets ultimately pass to certain beneficiaries whilst allowing one or more beneficiaries to benefit from them during a fixed period or during their lifetime. For example someone could gift a house in trust for a beneficiary such as a spouse to live in until they die at which stage the ultimate beneficiary such as the children from a previous relationship become entitled.
5. A trust can be used to structure assets in a tax efficient manner.
These are just a few of the many reasons why a trust may be the appropriate way for assets to be held. If someone is thinking of creating a trust in their will or in their lifetime there are many factors to be considered not least the tax implications of the trust. It is therefore always advisable to discuss these with a specialist trust advisor before any decision is taken.
If you require more information about Trusts, Wills or Probate, then please contact our Private Client Solicitor Mark Shaw on 01756 793 333 or email Mark on firstname.lastname@example.org
Wills, Trusts and Probate Solicitor
Tel: (01756) 793 333