Trusts

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What is a trust?

A Trust is a legal term that describes ownership of property, investments or other assets by one or more people (“trustees”) or a trust corporation for the benefit of other people (“beneficiaries”).

• Trusts can sometimes come into existence because a circumstance has occurred and there isn’t a formal legal document present.
• Generally, however, they are created by a legal document that is often known as a settlement.
• Alternatively, trusts can be set up by a will (known as a will trust).

Many people look into setting up a trust fund in order to secure their assets but most wonder how to set up a trust in the first place. Below explains a little more about how to do just that.

There are different trusts for different situations

There are five main types of trust that you will need to know about when setting up a trust, whether you plan to leave assets to people close to you or whether you’re setting up a trust fund for a child. They are as follows:

A Discretionary Trust

Setting up a discretionary trust will mean that no individual person is entitled to receive anything and instead, the power is handed over to the trustees to decide. The trustees will then determine:

• Who will benefit (when setting up the discretionary trust, you will name beneficiaries in the document).
• When to benefit them
• And to what extent they will be benefitted

A Life Interest Trust

Setting up a trust in the form of a life interest trust in the UK is when one or more people are entitled to receive the income, but the capital itself is held either for someone else or for when a future event occurs.

Accumulation and Maintenance Trusts

If you are setting up a trust for a child, then you will probably look into setting up an accumulation and maintenance trust. It’s worth knowing that, in the past setting up a trust in this way was a common occurrence because it benefitted a child or children under a specific age. Once the children reach the age specified, they then not only have rights to that income, but they were also usually entitled to the capital. However, special tax rules are now in place and apply to setting up this trust, which in turn has seen severe restriction on this as per the finance act 2006.

A Bare Trust

If you’re wondering how to set up a trust fund, a Bare trust is just another way of choosing who receives your estate. Setting up a trust in Bare Trust fund means that you can choose a nominee or trustee to hold the trust property, but really the beneficiary has complete rights to it and can ask the trustee to hand over the trust property at any time. A good example of this would be parents holding savings accounts as nominees for their children.

Charity, investments and pensions

Setting up a trust and learning how to set up a trust can also come in the form of charitable trusts, investment trusts and pension trusts but these particular trust set ups are not dealt with here.