What are the types of trusts?
There are many kinds of trusts. At Davisons, our trust law solicitors can advise you which type is best for you, what conditions you might include in the trust, and how to reduce your family’s tax bill.
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A trust is a legal document used to hold investments, land, money and property. One or more people (the ‘trustees’) look after the assets for the benefit of another person or people (the ‘beneficiaries’). The person who sets up the trust is called the ‘settlor’.
A trust can be set up for a range of purposes, which might include:
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There are many kinds of trusts. At Davisons, our trust law solicitors can advise you which type is best for you, what conditions you might include in the trust, and how to reduce your family’s tax bill.
With a bare trust, assets are held in trust and looked after by trustees until a beneficiary is 18 years old. The beneficiary then inherits all the assets held in trust. The beneficiary of the trust may be exempt from paying inheritance tax.
By setting up a charitable trust, you can leave assets to a charity that you would like to support while lowering the inheritance tax bill for your family.
With discretionary trusts, the settlor, i.e. the creator of the trust, will specify potential beneficiaries that they want to benefit from the trust. The trustees, i.e. the people who manage the trust, have the power to choose how much each of the beneficiaries get from the trust and when they get it.
The settlor can prepare a letter of wishes to go alongside the trust to give the trustees some guidance as to how they should use their powers.
This is a trust set up for a child who has lost a parent or somebody who has a mental or physical disability. A vulnerable beneficiary trust receives ‘special tax treatment’, which means the beneficiary will receive maximum financial benefit.
If there are other beneficiaries of the trust who are not classed as vulnerable, their portion of the trust will be kept separate for tax purposes.
A property trust can help to prevent property from being used to pay long-term care costs. If you and your partner own your property in joint names as tenants in common, you can set up this trust.
When you and your partner create a Will, you each leave your share of the property in trust. When one of you dies, that share of the property will pass into the trust, which means it cannot be used by the local authority to calculate care fees. Eventually, the share of the property protected in the trust will pass on to the beneficiaries of the Will.
A trust of property that includes land is also known as a ‘trust of land’. The law on trusts of land is covered by the Trusts of Land and Appointment of Trustees Act 1996 (or TLATA). The TLATA sets out the powers of trustees to manage and sell land and the rights of beneficiaries to occupy land.
Trusts of land are set up to manage estates in a tax efficient manner. It is a complex area of trust law, and our specialist solicitors at Davisons can advise you.
This is similar to a property trust in that it protects property from being used by the local authority to calculate long-term care fees. The difference is that a life interest trust protects all your assets and not just your property.
You can also choose somebody to benefit from the trust while they are alive but at the same time protect the underlying capital for your other beneficiaries after that person has died. For example, you could leave your property to your spouse but ensure that it passes to your children after your spouse has died. This can be particularly important if you have remarried and wish to pass assets on to children from your first marriage.
A trust can be set up as part of a Will, which is only created after death (a ‘Will trust’), or it can come into effect in the settlor’s lifetime (a ‘living trust’). With a living trust, the settlor can benefit from the income generated by the trust in their lifetime but keep the core assets safe for their beneficiaries.
If a living trust is set up as ‘revocable’, which means the settlor can change the terms of the trust at any time, it will usually become irrevocable upon their death. This means that after the settlor dies, the terms of the trust can no longer be changed.
When the settlor of a living trust dies, the assets contained in the trust, which might include money, investments, land and property, can be distributed to the beneficiaries they have chosen. Assets are distributed by the ‘successor trustee’ who was named by the settlor in the legal agreement.
If you are a successor trustee, our Wills and trusts solicitors at Davisons can help you. We can provide you with the clear legal and practical guidance you need to administer the trust. Successor trustees are usually entitled to financial reimbursement from the trust for legal expenses.
Trust disputes can arise for many reasons and have serious legal consequences.
Examples of disputes are:
If you believe a trust is being mismanaged, our trust dispute solicitors at Davisons can help you whether you are a settlor, trustee or beneficiary. We will advise how the assets held in trust can be fully protected and how they can be distributed.
Our specialist solicitors have extensive experience in every aspect of trust law, including setting up, managing, amending and winding up trusts.
Everybody’s financial and personal circumstances are different. We can work with you to provide trust advice tailored to your requirements so that you and your family receive the greatest benefit from your assets.
Our team of specialist lawyers are experts in their field. Be confident in their advice and decisions to help get the right outcome for you. Contact us today to see how we can help