Trusts

A trust is a legal document that can be used to appoint someone to hold and manage assets (such as money, property, or shares) for someone else. The people involved in a trust are:

• The settlor - the person who creates the trust and transfers the assets to be held for someone else.
• The trustee(s) - this is the individual(s) who become the legal owners of the assets which they will hold for the benefit for someone else.
• The beneficiary (or beneficiaries) - this is the individual(s) for whom the trustees hold the assets.

Although the trustees become the legal owners of the assets, they are legally responsible for holding them in line with the terms of the trust and in the best interests of the beneficiaries. Therefore, as settlor, you have considerable control over how the assets should be managed.

There are many reasons you may want to set up a trust, but common reasons include:

• To minimise Inheritance Tax
• To provide for your children, particularly those under 18 years old
• To safeguard and provide for vulnerable family members
• To set aside money for your care
• To pay for your children or grandchildren’s education
• To protect and manage personal injury compensation

There are many types of trust available, all offering different benefits depending on the purpose you need them for. For example:

• Bare trusts - this is the simplest type of trust. You transfer assets to trustees who hold it on trust for a specific beneficiary. Once the beneficiary is at least 18 years old, they are entitled to everything in the trust straight away.
• Discretionary trust - this type of trust gives the trustees the power to choose how the assets will be distributed between a specified class of beneficiaries. As settlor, you can leave a letter of wishes setting out your instructions for the trustees about how they should use their power.
• Interest in possession trust - the beneficiary is entitled to any income produced by the trust, but they do not have access to the property or investments that generate the income.
• Personal injury trust - you can set up this kind of trust to hold compensation you received from a personal injury claim. By putting this money in a trust, you can avoid losing any state benefits to which you are entitled.

You may be able to reduce your liability for Inheritance Tax after you die by using trusts. When you set up a trust, you transfer the legal ownership of certain assets to someone else. This means that after you die the trust assets will not usually be considered part of your estate so will not attract Inheritance Tax.

If you would like more information, we offer a dedicated Tax Planning service.