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Learn about trusts

A trust can be an important element of good financial planning, but if you are new to them they can appear complicated. The information below will help you get to grips with the basics of a how a trust works, why you would use one and who needs to be involved.

What is a trust?

  • A way of arranging property (an investment or life policy for example) for the benefit of others without giving up control
  • A legal obligation binding a person/persons (the trustee(s)) to deal with the property (the trust fund)
  • Dictates who can benefit from the trust assets – how and when
  • Created during an individual’s lifetime or on death via a will or intestacy

Why have a trust?

  • Certainty of destination – consider a life policy in trust – this provides peace of mind for the client and adviser that the money will be in the right place at the right time
  • Enables gifts to minors
  • Allows prompt access on death
  • Taxation benefits
  • Some trusts reduce the value of an individual’s estate for Inheritance Tax purposes
  • Different types of trust are taxed differently

Who is involved in the creation and management of a trust and who can benefit?

Settlor (the person who owns the property):

  • Creates the Trust
  • Gifts the property to the trust
  • Commonly appointed as a trustee during their lifetime
  • Usually excluded from benefit
  • Can be single or joint individuals

Beneficiaries:

  • Nominated by settlor
  • The persons entitled to benefit - May be by class, for example children/grandchildren or by name.
  • Their interest in trust property stipulated by settlor
  • They have no say in how trust property is managed or dealt with
  • Can also be a Trustee

Trustees:

  • Appointed by Settlor
  • Must be in full mental capacity
  • Must be over 18
  • Can be a corporation
  • Are legal owners of the trust property
  • Control and distribute the trust property
  • Observe the terms of the Trust
  • Must act collective and objectively in the management of the trust

Protector:

  • An optional role
  • An independent overseer of trustees’ actions
  • Their powers are contained within the trust deed
  • Power of veto over some trustee actions
  • Can act as a liaison between trustees and beneficiaries
  • Usually have power to remove current trustees

 

Support Material

Trust forms

Go straight through to the trust forms on our literature library.

Trust decision tree

This takes you through a journey based on clients' needs to find the correct trust.

Financial Adviser Verification