Trusts

A trust is a way of handing over your assets to your beneficiaries, without allowing them full access or control over the asset. An asset can be anything from your property, shares, life insurance and money and is often also known as the trust property. When you choose to put your assets in trust you will be asked to name a beneficiary and the trustees you wish to control the trust.

The people involved in a Trust

A person known as the settlor will create the trust and put property into it in the beginning. The settlor will also state in the trust deed how the property and income will be used. A trustee is the legal owner of the trust and must carry out what is set out in the trust deed and administer the trust.

The beneficiary is someone who will benefit from the property and they may be named individually or as a class of beneficiary.

Main types of UK trust
In a bare trust the property will be held in the trustee’s name but the beneficiary can take possession of the income and trust property at any point. This type of trust is often used to pass gifts on to children whilst you are still alive.

An Interest in Possession trust means that the beneficiary has a legal right to the trust’s income but not the property itself. You could, for example, leave the income from the trust property to your partner and then leave the property for someone else when your partner dies.

In a Discretionary trust the trustees decide how much income to pay to the beneficiaries.  You can use this type of trust to pass on property whilst still alive and therefore still have full control over it.

An Accumulation and Maintenance trust will provide money to look after children when they are still minors. Any income will later pass to the children.

Within England and Wales the beneficiaries will be entitled to the property when they reach the age of 18 but in Scotland this is 16.

Setting up a trust can be very complicated and you may have to pay Inheritance Tax and/or Capital Gains Tax.

Investment trusts

Investment trusts invest in the shares of companies. With this type of trust you are investing directly and the share values can fluctuate. Some investment trusts are based upon capital growth with only a small income from dividends. However some will invest for a more regular form of income from the dividends.

It is important to remember that a trust is a legal document and cannot be cancelled; therefore, you should always seek professional advice.

You can read the answers to some common Investment Trusts questions in our Trusts FAQ.

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