All About Trusts – Frequently Asked Questions

When it comes to making sure that the right money goes to the right people at the right time, a Trust is an invaluable tool that can be used in a wide variety of ways. In fact, depending on the complexity of your estate and of your wishes, you may find that you end up using a number of Trusts to help you achieve different goals for different people.

Understanding Trusts

First of all, let's go through some of the basics;

What is a Trust?

A Trust is a financial arrangement made between three parties;

The party that creates the Trust - known as the Settlor - which could be an individual, a couple, a group of people, a company or a legal entity of some kind.
The party that administers the Trust - known as the Trustee - which could be an individual, a couple, a group of people, a company or a legal entity of some kind.
The Beneficiary or Beneficiaries of the Trust who receive the benefits of the property and/or money titled in the name of the trust.

Essentially, the Settlor transfers ownership of property and/or money to the Trust and the Trustee who then manages those assets for the benefit of the Beneficiary or Beneficiaries, as directed by the terms of the Trust, which are dictated by the Settlor.

What is a Settlor?

The Settlor is the party that creates the Trust and it could be an individual, a couple, a group of people, a company or a legal entity of some kind. The Settlor may also be referred to as the Trustor, Grantor or Trustmaker.

If you wrote your will in such a way that you had a Trust (or Trusts) created to help manage property and/or money for the benefit of your beneficiaries, you would become the Settlor.

What is a Trustee?

What is a Beneficiary?

The Different Types of Trust

Trusts come in many shapes and sizes including Discretionary Trusts, Bare Trusts, Interest in Possession Trusts, Accumulation Trusts, Mixed Trusts, Settlor-Interested Trusts, Disabled Person's Trusts and Non-Resident Trusts.

Here's a little more information about each type;

Discretionary Trust

A Discretionary Trust is one in which the beneficiaries do not have the legal right to demand payment of Trust income or capital (unlike beneficiaries of other types of trusts). Payment is wholly within the discretion of the Trustees, as are the amounts and frequency of the payments.

The Trustees’ powers are defined by the creator of the Trust in the Trust Instrument. Should you entrust Heritage Will Writing to draft your will, it becomes the trust instrument.

Discretionary Trusts can be used in a variety of different ways, which is why we use them more often than other types of Trust.

Bare Trusts

Any assets held in a Bare Trust are held in the name of the Trustee but the beneficiary has the right to all of the capital and income of the trust at any time, if they’re 18 or over (in England and Wales) or 16 or over (in Scotland). This means the assets set aside in a Bare Trust will always go directly to the intended beneficiary, once they're old enough.

It's easy to understand why Bare Trusts are often used to pass on property and/or money to young children. The Trustees look after the assets until the child/children are old enough.

Interest in Possession Trusts

With an Interest in Possession Trust, all trust income must be passed on to the beneficiary as it arises (less any expenses).

For example, if you owned a number of shares and, in the event of your premature death, wanted to allow your spouse to benefit from the income generated by those shares whilst ensuring that the shares pass on to your children when your spouse passes, you can use an Interest in Possession Trust.

You simply create a trust for all the shares you own and the terms of the Trust would state that, when you die, the income from those shares go to your spouse for the rest of his/her life. When your spouse dies, the shares will pass to your children.

Your spouse is the income beneficiary and has an ‘Interest in Possession’ in the Trust but she has no right to the shares themselves.

Accumulation Trust

Settlor Interested Trusts

Disabled Person's Trust

A Disabled Person's Trust is one in which special provisions are made for a disabled Beneficiary.

It's particularly important to ensure that your estate is handled correctly when it comes to a disabled Beneficiary and if you don't make the right provisions in your will, the person you care for may face:

Entitlement to benefits from the Benefits Agency being stopped.
Entitlement to Local Authority funding being stopped.
A Receiver from the Court of Protection having to be appointed to manage the affairs of the family members, which may result in unnecessary delays and fees that could be expensive.
Where reasonable provision is not made in a Will for a dependant family member who is receiving local authority funding, a claim may be made upon the estate of the deceased under the Inheritance (Provision for Family and Dependants) Act 1975. The costs of such actions come directly out of the estate.
The estate being subject to a much harsher tax treatment.

If a Beneficiary in your Will is disabled, you really do need to get the right advice.

Non-Resident Trusts

Mixed Trusts

How Can a Trust Be Used

Trusts can be used to help achieve a variety of goals in a wide range of situations. Here are some questions we often get asked about how a Trust can be used.

How Are Trusts Handled During Probate?

One of the main benefits of a Trust comes in to play when you want to make sure that your beneficiaries receive their inheritance quickly.

The process of probate can easily take a year, or more, before the proceeds get distributed to the beneficiaries, particularly where there is property to be sold. Assets held in a Trust bypass that process, completely, and typically get passed on to the beneficiaries in around two weeks, which is a great reason to use one.

How Can A Trust Protect Family Assets and Keep Them in The Family?

If you're like many of our clients, you've worked hard during your life and you want to make sure that it's your family that get the benefit of your hard work. Placing property and/or money in to Trust allows you to ensure that you family benefits from your hard work whilst preserving (and even increasing) the value of your estate for future generations.

Many of the world's wealthiest people have become so because, many years ago, an ancestor sought some great advice and created a family Trust.

What if My Children Get Divorced After I Die?

A great deal of inherited wealth leaves the family as a result of divorce. I suspect most of us know someone who's been affected by that and, as a result, many of us worry about it.

You know the scenario. Someone inherits their parents home and assets - worth, let's say £400,000 - and then they get divorced. Their spouse walks away with £200,000, which is money that the parents wanted to keep in the family.

A Trust can be used to prevent this happening.

The great part is, whilst the spouse is married - and if they were to remain so - they benefit, fully, from the inheritance. However, in the event that they divorce, they have no entitlement to or control over the inheritance and it stays in the family, all thanks to the Trust.

What Happens if I Die While My Children Are Still Under 18 Years of Age?

If your children are under 18 years of age, they're not capable of managing their own financial affairs and a Trust can be used to ensure that property and/or money is held for them until they reach that age.

The Trust would be administered by the Trustees and you can dictate how the assets are handled and how any income and capital is used. For instance;

Income and/or capital from the Trust may be paid to your children's Guardians to help cover the cost of raising your children.
The assets could be left to accumulate to help fund your children's University education.
The assets in the Trust could be preserved, so that your children may only ever have access to the income, ensuring that they don't squander their inheritance (something many of our clients worry about when it comes to young children and young adults).
You could place other conditions on how the assets held in Trust may be used.
A Trust allows you to make certain decisions for the benefit of your children, even though you're no longer with them.

What if My Beneficiaries Are Disabled or Lack Capacity?

If your Beneficiaries are disabled or lack capacity a Trust can be used to provide for them.

With a Beneficiary who's disabled, there are a number of implications that you need to consider and if you don't make the right provisions in your will, the person you care for may face:

Entitlement to benefits from the Benefits Agency being stopped.
Entitlement to Local Authority funding being stopped.
A Receiver from the Court of Protection having to be appointed to manage the affairs of the family members, which may result in unnecessary delays and fees that could be expensive.
Where reasonable provision is not made in a Will for a dependant family member who is receiving local authority funding, a claim may be made upon the estate of the deceased under the Inheritance (Provision for Family and Dependants) Act 1975. The costs of such actions come directly out of the estate.
The estate being subject to a much harsher tax treatment.

If a Beneficiary in your Will is disabled or lacks capacity, you really do need to get the right advice.

What if My Spouse Re-Marries After I Die?

Many of our clients worry what might happen if their spouse re-marries after they die.

The nightmare scenario is one where your spouse re-marries and then dies first, leaving everything to their new partner. Their partner than leaves everything to their own children and nothing to yours.

A Trust can be used to prevent this from happening, whilst ensuring that your spouse (and their new partner) can benefit, fully, from any assets but not have any entitlement to or control over them, ensuring that the assets end up passing to your own children.

My Beneficiaries Receive Benefits. Will Their Inheritance Affect This?

Is it Possible to Pass on Some of My Assets Before I Pass Away?

What About Inheritance Tax?

FAQ's Menu

Please Note

The information provided here is intended to address the types of questions that people are often concerned about.

To see an outline of what we do and how we deliver services for our clients, please visit the Our Services page. You will find information on the key aspects of creating your will including:

Personal Reviews, Will Writing, Estate Planning & Tax Management, Lasting Power of Attorney, Discretionary Trusts, Special Provisions & Assurance (disabled beneficiaries), Severance of Tenancy, Secure Document Storage.

If you have a specific question, want more detailed information or want your will professionally prepared, then please just get in touch.

02380 879243