A trust is a legal entity where trustees are legally responsible for managing assets on behalf and for the benefit of someone else. Trusts are used in a variety of circumstances including providing for someone who is vulnerable and not able to manage their own assets, when leaving assets to someone under the specified age for inheritance and for Inheritance Tax planning.
There are different types of trusts which can be set up to manage assets depending on your particular circumstances. Examples include:
A life interest trust is generally created to allow a surviving partner to remain in a property or receive income only on financial assets during their lifetime but to protect the asset for future generations. It would usually be created in such a way that if the surviving partner were to remarry or to die themselves, the property would pass to the beneficiaries of the trust, most often children. It can also be used to pass property on to children from a previous marriage whilst allowing a partner to remain there whilst still alive and to prevent assets from being diverted by the survivor following the first death.
This is the most common type of trust as it allows the most freedom to trustees as to how it is managed, when payments are made and to whom. By using this type of trust, it is also then possible for trustees to take into account a change of circumstances which trustees of other types of trusts may not be able to do.
These trusts are most commonly used when clients want to provide the utmost flexibility as they will allow the trustees to take account of the client's personal circumstances, or other factors, when deciding upon what to do.
This type of trust is usually set up by one party with a lump sum to benefit their spouse and is generally designed so that the spouse benefits from their pension scheme without it becoming liable for Inheritance Tax. If you are considering this type of trust, a member of the team can advise on its relevancy for you and support you to put the trust in place.
Family trusts are generally set up to benefit your family members and allow you to transfer assets into trust over time to reduce the value of your estate for Inheritance Tax purposes. For any assets gifted into a trust to be treated as falling outside the estate for Inheritance Tax purposes, the settlor must survive seven years from the date of the gift. It is therefore important to think about when to create this type of trust to ensure maximum benefit for your beneficiaries. It is possible for more than one trust to be created, and a member of the Private Wealth team can advise you on the rules surrounding this and your particular circumstances.
Protective trusts are created to protect the interests of a beneficiary with trustees managing the assets on their behalf. They are similar to life interest and discretionary trusts but can be used to manage assets of someone who is not able to manage them themselves such as someone who is lacking capacity, is a minor or who is not able to manage finances for some other reason.
You can find more information about Protective Trusts here.
If you’re not sure which Trust will be the best fit for your situation, our Private Wealth team will be able to advise you whilst working in alignment with your long-and-short-term goals. We are also able to provide advice to trustees and beneficiaries whilst the trust is active.
Buying a property is an exciting step and probably the biggest purchase you will ever make. If you are looking to buy a property with a partner or if someone else (such as a parent) is contributing financially, you should consider putting an agreement in place to protect the deposits that each party has contributed. This can be done by putting a declaration of trust in place.
This will specify what each party has contributed, if each party owns a specific share, what will happen to the property and equity should the relationship or situation change and one person wants to sell. It can also include details of how the property will be managed day to day, such as who will pay for what elements of upkeep and maintenance, who will pay for significant alterations that may be planned.
If you are purchasing land or property which is unregistered, you will almost certainly have to register it with the Land Registry. Registering the property will help to protect the land from others claiming ownership, give you proof of ownership and make the process smoother should you wish to sell it in the future. We can help you to register the property, ensuring that the boundaries are clearly defined and completing any additional paperwork needed.
The Private Wealth team at BPE are highly experienced in supporting clients with both setting up and the ongoing management of trusts. We can advise on the most suitable trust for your situation, working with you to ensure that your beneficiaries are looked after appropriately, and assets are managed effectively.
We will also work with your wider network of financial advisors and accountants to ensure that the trusts fit alongside your wealth management and tax objectives and review then regularly to ensure that they remain fit for purpose.
A trust can be used for a number of different purposes. Sometimes they are used to manage the use of an asset, such as a family home, whilst passing the asset itself to future generations. They can also be used to protect assets for individuals who are unable to manage their assets themselves. They can also be used to ensure that part of your estate, often business interests, is passed to your beneficiaries without becoming liable for inheritance tax.
Families may also put assets in trust to allow the beneficiary to have limited entitlement which can assist with future considerations such as divorce, care fees and incapacity.
Anyone aged 18 years or older can be a trustee, however, you should choose your trustees wisely as they will be taking on a big responsibility and have a legal obligation to carry this out properly.
It is a legal requirement that you have at least two trustees, and a maximum of four trustees. The trustees will work together to ensure that any decisions made are fair. Many trusts involve property, and it is not possible in England to have more than four owners of a property, which is why the number of trustees is capped at four. You will also need to ensure that your trustees can get along with each other. It is possible to have majority decisions drawn into trusts, but decisions made unanimously are best.
You may also want to consider appointing a professional amongst your trustees. Members of our Private Wealth team often take on the role of trustee for clients and are able to bring their experience of managing trusts to assist in decisions which need to be taken. It is also often easier for a lawyer to take the emotion out of a decision and to illustrate the benefits of a decision in an impartial way, whilst always acting in the best interests of the beneficiary.
Under English law, a trust can be created to last for up to 125 years. There are strict rules to follow to maintain transparency and to always keep the interest of the beneficiaries front of mind when making decisions. Most trusts must be registered with HMRC and may be subject to taxation or charges depending on how they are set up and who the beneficiaries are.
Regular trustee meetings should be held and all decisions made must be recorded. Accounts must also be produced regularly to illustrate how the trust is being managed.
For a long running trust, it may also be necessary for a change of trustee and this must be carried out in a specific way, with careful thought and consideration as to how the Trust will be run by the new combination of trustees. Our Private Wealth team can work with you to ensure that the process is followed correctly, allowing you to ask any questions you may have.
A trust can be brought to an end often at the agreement of all the relevant parties, or often with the consent of the Court, so if you have concerns, please get in touch and we'll do all we can to steer you / the trustees through what the options are.
