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Loan trust

Loan trust unlimited liability – bare trust – English and Scots law versions/ Loan trust unlimited liability – discretionary – English and Scots law versions

The loan trust can be suitable where individuals do not wish to give away their capital but they are happy for the growth to be held in trust for the intended beneficiaries. The trust is available in both bare and discretionary versions and can therefore be suitable for clients who have fixed beneficiaries or require the flexibility to change beneficiaries.

The unlimited liability means that if there is a shortfall in the value of the trust fund (generally the investment into the bond), the trustees are liable to find the shortfall from their own resources.

Example: Jane has a lump sum of £100,000 which she would like to invest. She would like to make provision for her children but isn’t ready to give her capital away so she invests in a loan trust. The outstanding loan will always be repayable to her on demand but the growth is held in the trust for her children.

Loan trust limited liability – discretionary – English and Scots law versions

The limited liability loan trust is similar to the ‘loan trust unlimited liability’, but the liability for the outstanding loan is restricted to the amount available in the trust fund. So, for example, if the stock market were to experience a downturn, the trustees would only be liable for the amount that could be recovered from the investment and not the full loan amount.

Example: Fred invests £100,000 into a loan trust. He has received £50,000 of the loan back in the form of regular loan repayments and there is a £50,000 loan outstanding. Due to a downturn in the markets his investment value has fallen to £45,000 but he wants the loan to be repaid in full. The trustees are only liable to repay the £45,000 value of the trust fund and Fred will lose his entitlement to the balance of the outstanding loan.

Trust forms

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

Trust decision tree

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

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