Introduction To Trusts

The history of trusts and their use in England and Wales goes back centuries.  It used to be a way of providing for the care of illegitimate children; when such matters were deeply frowned upon and the child and trusts were kept secret.   The uses of a trust have been so successful that they still endure today. 

A trust is a legal entity which forms a relationship between a trustee and a beneficiary.  The trustee is held legally responsible for looking after property which is held under a trust for the benefit of the named beneficiaries.   This property can be buildings, land, money, investments, paintings, antiques or any type of tangible asset; even intellectual property.  Any type of property put into trust is referred to as the trust property.

Whatever the property is it is placed into trust typically for a set time which is laid out in advance.  Usually until a time in the future when the beneficiary reaches a particular age or reaches a point in the future where such funds would be of great assistance to them.  When starting university or buying their first home are times for example when money could really be useful to a young beneficiary.

A trust can be set up at any time during a persons’ life.   The settler can create this inter vivos trust through the use of trust deeds (also known as a trust agreement).   During their lifetime the settler can place their property into trust.  After the settler has gone about ‘settling property’ the trust deeds set out their wishes and instructions for the operation of the trust created and the property contained within it.

Trusts can also be set up upon a persons’ death.  The testator or testatrix can create a testamentary trust within their own Last Will & Testament.  The trust will only commence after their earthly departure.  ‘Making a settlement’ of property is determined by what property the testator is ‘writing in trust’ within their Last Will and Testament.

Most trusts are used to leave gifts to a minor.  The reason is that a child in England & Wales cannot directly inherit anything and acquire instant legal ownership of it unless they are classed legally as an adult.  The purpose being that they are considered too young to look after themselves responsibly and as such by law should be under the supervision of an adult such as a parent, guardian or other duly appointed person.  Instead the gift must legally go into trust; whereby, the child will later receive their gift and have legal ownership of it upon reaching adult status or other later pre-appointed age or time.  Adult status in England and Wales is attained when a child becomes 18 years old.

Having to put a child’s gift on hold and into trust makes the distribution of an estate more problematic for an executor and later a trustee.  One possible way to simplify the situation is to state in your Last Will & Testament that the legacy should go to the child’s parents until the child becomes an adult; unless of course they have already acquired adult status in which case the legacy can be passed directly to them.  The added benefit of doing it this way is that a trustee would not be required to look after the child’s inheritance for what could be many years.  Whether using a trustee or an entrusted parent to look after a legacy for a child there is always a risk that if during this time the person entrusted to look after the gift dies then the gift might accidentally never reach the intended beneficiary. 

People use trusts for numerous reasons.  A trust can be set up for the purpose of making gifts to charities, managing, controlling and protecting the family fortune and creating a pension trust scheme for employees are just some of the reasons for establishing a trust.

In terms of protecting their wealth many people often make inter vivos transfers of both money and assets to others via a trust with the purpose of avoiding or reducing a future inheritance tax liability on any estate property remaining upon their death.  People use many different types of Family trusts in England and Wales and each of these may be taxed differently; so making a trust selection needs to be done wisely.

Making inter vivos trust transference of money and assets to family members can save having to sort all this out in a Last Will and Testament and if most of the wealth has already been transferred in this way then probate may be alleviated or at least greatly simplified. 

Trusts can be created for the benefit of minor beneficiaries and the instructions within can guide the trustees in management of the trust property.   If such a trust is created through a Last Will and Testament and the named child has reached adulthood before you the testator/testatrix dies then that child will receive their proposed trust inheritance directly like any other bequest made within that Last Will which results in the planned trust for them never actually happening.

As trusts are designed to run for many years this makes their use ideally suited to provide for the long term care required by a mentally or physically disabled person.  A trust for this purpose is both equally useful and beneficial to set up whilst the grantor is alive or after the death of a testator.

Sometimes an intended beneficiary is reckless with money and can’t be trusted not to squander their inheritance.  Other times they may simply not be good at running their own financial affairs.  In either of these cases leaving a direct gift to them in your Last Will and Testament may prove a foolish move especially if you want the result of your life’s work to be put to the best use.  After all it would be a shame for it to vanish carelessly and needlessly in the blink of an eye after you have work so hard to get this wealth in the first place.  With this in mind a testamentary trust gives you the ability to leave them a gift yet offers you the ability to still control how this wealth is spent.  In the same manner trusts can help you provide gifts and support to others whilst you are alive and make sure that your generosity and help is used in accordance with your wishes.

 

Above are some of the key reasons for creating trusts.  Over the years there have been many types of English and Welsh trusts each designed and created to cater for a whole host of requirements so when you’re searching you will find that there are loads of trust types out there to choose from.  The various trusts each serve different purposes.  So when it comes to making a English or Welsh trust selection consider all your objectives and aim to set up a trust that will achieve these requirements.

SEE ALSO:

Intro to Trustees
Appointing An Executor.
Inheritance Tax
Rules Surrounding Guardianship
Selecting Your Guardian
Automatic Guardianship
Parental Responsibility
Wills & Family
Selecting Trustees
Changing Guardianship
Money For Child And Guardian

 

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