Trusts can serve as flexible and versatile vehicles for holding and managing your assets. Before you set up a trust, however, you should learn about the different types of trusts available, so you can utilise them effectively. Turner Little asks: what are the different types of trust?
Bare trusts
Otherwise known as ‘simple trusts,’ ‘bare trusts’ are often used to pass assets on to young people e.g. children. The assets contained in these trusts are held in the name of the trustee until the beneficiary turns 18 (if they live in England or Wales), or 16 (if they live in Scotland). The trustee manages the assets until the beneficiary comes of age, at which point the latter has the right to all capital and income generate by the bare trust.
Interest in possession trusts
You can establish an ‘interest in possession trust’ (‘life interest trust’) either during your lifetime or via your will. With this vehicle, you can ensure that the beneficiary (‘life tenant’) has the right to earn income (minus expenses) from the trust, usually for their entire lifetime. When they pass away, the trust is inherited by your other named beneficiaries (‘residuary beneficiaries’). Unless you state otherwise in the trust deed, your life tenant does not receive rights to any capital. If you have put a property in the trust, a life tenant can live in, or earn rental revenue from, the property.
Discretionary trusts
Typically, ‘discretionary trusts’ are utilised to keep wealth within families, due to their flexibility. These vehicles allow you (the ‘settlor’) to place assets in a trust, in order to give these assets to a group of trustees, who hold them ‘in trust’ while deciding what to do with said assets. You also appoint a group of beneficiaries, who the trustees pass assets onto at a future date of their choosing. Your trustees can decide which beneficiaries receive assets and how much they get. The assets, as well as any payment received from them, are called the ‘trust fund.’ The Terms of the Trust Deed in reality severely limit the ‘discretionary’ of the Trustees and , in addition, you may appoint a Protector who can be given overriding powers and whom the Trustees must seek approval from when determining distributions from the Trust.
Accumulation and maintenance trusts
With ‘accumulation and maintenance trusts,’ you can stipulate that your beneficiaries are only entitled to receive property, or at least revenue, when they turn a specific age (no older than 25). Before the date that the beneficiary becomes entitled to these assets, the trustees have the power to accumulate the income in the trust and use it to fund the maintenance of the beneficiary.
Mixed Trusts
When researching the different types of trust, you should definitely learn about ‘mixed trusts.’ This is basically a mixture of more than one kind of trust, say for example, an accumulation and maintenance trust and an interest in possession trust. By using mixed trusts, you can develop an extremely versatile wealth management solution that suits your purposes.
Settlor-interested trusts
If you establish a ‘settlor-interested trust,’ you can retain an interest in the trust. You can also keep a settlement in the vehicle, if property held in the trust can be applied, or paid to benefit you, your spouse or civil partner. You will be liable to pay tax on any income the trust or settlement generates, even if you do not receive said income. If your trustees have incurred expenses when managing this vehicle, you cannot deduct them in order to lower your tax bill.
Seek expert advice
Trust Law both in the UK and overseas can prove complex. It is wise to see expert advice when setting up a trust, in order to ensure that you can employ these vehicles to manage your wealth effectively. Utilise Turner Little’s trust services, to enable you to choose the right kind of trust for your circumstances.
Turner Little
Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as Trust provider. You can receive our monthly newsletter by signing up using the form below.
