In their most basic form trusts are a way of looking after assets (money, investments, land or buildings) for people. They are a legal arrangement where one or more ‘trustees’ are made legally responsible for holding assets. The assets – such as stated above – are placed in trust for the benefit of one or more ‘beneficiaries’.
The trustees are responsible for managing the trust and carrying out the wishes of the person who has put the assets into trust (the ‘settlor’). The settlor’s wishes for the trust are usually written in their will or set out in a legal document called ‘the trust deed’.
Trusts may be set up for a number of reasons, for example:
- to control and protect family assets;
- when someone is too young to handle their affairs;
- when someone can’t handle their affairs because they are incapacitated;
- to pass on money or property while you are still alive;
- to pass on money or assets when you die under the terms of your will – known as a ‘will trust’;
- under the rules of inheritance that apply when someone dies without leaving a valid will.
There are several types of UK family trusts and each type of trust may be taxed differently.
There are also other types of ‘non-family’ trusts. These are set up for many reasons. For example, to operate as a charity, or to provide a means for employers to create a pension scheme for their staff.
‘Trust property’ is a phrase often used for the assets held in a trust, which could include: money; investments; land; buildings and other items such as paintings, furniture & jewellery.
The cash and investments held in a trust are also called the trust ‘capital’ or ‘fund’. This capital or fund may produce income, such as interest on savings or dividends on shares. The land and buildings may produce rental income. Assets may also be sold producing gains for the trust. The way income is taxed depends on the type of income and the type of trust.
Trusts can come in many forms, and it is usually advisable to seek professional help to determine the most appropriate vehicle for your circumstances. That way the maze and complicated tax path of trust law, might just become a bit clearer.
Check out our recent blogs for some more information on Trusts.