Trusts FAQs

What is a trust?

A trust is a way for you to give your assets for the benefit of your beneficiaries, but they will not have full control over the asset. Used alongside a will it means you can pass on your assets as you feel appropriate.

When would you need a trust?

A trust can be designed for a number of different reasons. They can be used in times when a person is too young, if a person is unable to manage their own affairs for one reason or another and to pass on money or property whilst alive.

Are there Benefits to Placing my Life Insurance Policy in Trust?

Having a trust means that any money will go to your beneficiaries, without the need for probate. It therefore makes the whole process much quicker.

Why should I write my Policy in Trust?

Should your family or dependents need to make a claim in the event of your death then having your policy in trust means that will not have to apply for costly and time consuming probate.

What types of trusts are there?

In a bare trust the property is held in the name of the trustee but the named beneficiary can take control of the income and trust property at any point. It can be used to pass gifts on to children during your life.

A trust known as interest in possession gives the beneficiary a legal right to the trust’s income but not the actual property. This allows you to leave the income from the trust property to your partner and the property to someone else when your partner dies.

With a discretionary trust, the trustees will ascertain how much income to pay to the beneficiaries. An accumulation and maintenance trust provides money to care for children when they are still too young to care for themselves. Any income will later pass to the children. When you decide to set up a trust remember that it can be very intricate and you may have to pay Inheritance Tax and/or Capital Gains Tax.

What is an investment trust?

Investment trusts invest in the shares of companies and you are therefore investing directly and the share values can vary.

Who is involved in a trust?

The settler will create the trust and state how the property and income will be used. The trustees are described as being the legal owner of the trust property. They will also be in charge of administering the trust.  The beneficiaries are those who will gain from the property that is held in the trust.

Is a trust taxable?

Trusts will be taxable and any beneficiaries will have to pay tax separately on any income they may receive from the trust.

What is the current Inheritance Tax Threshold?

The threshold for inheritance tax for the 2009/10 tax year is £325,000. Should your assets be more and not transferred to your spouse then a 40% tax will be charged. One way to get around the difficulties of inheritance tax could be to take out a life insurance policy that will pay out when you die and therefore can help to cover this.

What are the tax implications of a Discretionary Trust?

All income from the trust is taxed at 40% and capital gains within the trust are also taxed at this rate.

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