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Trusts and Trust Administration

Trusts provide people with more options when organising their financial affairs and when planning for the future. They can be used in a number of ways, such as to protect assets, for charitable purposes or to help in tax planning, and there are various types which can be created either during an individual’s lifetime or set up on death.

Trusts can also be a useful way to manage the complexities that can arise in modern families including second marriages or to help a member of the family who may need more support and greater supervision over money matters.

Frequently asked questions

The following are some of the frequently asked questions about trusts and trust administration.

A trust is a legal arrangement where an individual (the settlor) transfers assets to specific people (the trustees) to control, look after and, where appropriate, administer for the benefit of a specified person or group of people (the beneficiaries).

Legally, the trustees make all the decisions about the assets but must act in the best interests of the beneficiaries and in accordance with duties and powers set out in legislation and any Trust Deed. A Trust Deed is the document that sets up the trust.

The process is quite straightforward and involves getting a document (a Trust Deed) prepared that sets out who you want to be the trustees, what will be in the trust, and what are to be the purposes and rules relating to the trust.

We can advise you on how best to set up the trust to achieve your goals and assist with drafting a Trust Deed.

There are two main types of trust:

  • A Liferent (sometimes called an Interest in Possession Trust) is where one specified individual or group (called the ‘liferenter’) have the right to the use and enjoyment of an asset during their lifetime or until they give up that right. They never own the asset but are entitled to the ‘income’ generated by that asset, for example the dividends from a shareholding.

On the death of the Liferenter or the renunciation of the liferent interest, the assets automatically go to the ‘fiars’ – this can be a specific individual or group of individuals or another trust.

  • A Discretionary Trust is where assets are placed in a trust and the Trust Deed provides the trustees with wide powers. The trustees have discretion as to which beneficiaries receive payments. The Trust Deed will normally provide a list of potential beneficiaries but who gets what and when is at the discretion of the trustees.

This type of trust has much more flexibility and a well drafted one will allow the trustees to make payments of income or capital to a beneficiary at any time and in any amount. Because of the extent of the discretion, the Trust Deed needs to drafted carefully.

Within these two main categories are lots of different versions and structures to fit the needs and wishes of the person setting up the trust and their intended beneficiaries. With our experience, we can advise you on what model best suits your needs.

Trusts can be used to:

  • Help in Inheritance Tax planning, as a trust can hold investments, life policies, pension benefits, private company shares, and such like outside the estate of an individual, or their family, to help reduce or save for future tax
  • Support charitable purposes, using a Charitable Trust with corresponding tax benefits
  • Protect inheritance due to any children until they are old enough to fully take control of it
  • Provide under an individual’s Will that if their spouse or partner marries again they will be entitled to the income from the estate but not to the capital, so the capital will ultimately pass on to the individual's own family
  • Provide protection for an individual who may be in a potentially difficult financial situation, such as a difficult marriage or a high-risk business, or who is vulnerable, often because of lack of mental capacity
  • Avoid splitting ownership of a business if there are succession problems with the next generation(s)
  • Hold an individual’s own assets which may be at risk in the future, for example from legal rights claims or on divorce
  • Ring-fence Personal Injury compensation awards and protect them from being taken into account in assessing means-tested benefits
  • Take advantage of non-UK resident situations to reduce taxation

A Charitable Trust enables you to support the people and things you believe in, to make a difference and to leave a lasting legacy.

Charitable Trusts are normally established to support charitable purposes by way of a Deed of Trust, or under a Will. There are a variety of advantages to charitable status, including exemption from most forms of tax, including Income Tax, Inheritance Tax, and Capital Gains Tax.

Charitable Trusts, like other trusts, are administered by trustees. In Scotland such trusts are regulated by the Office of the Scottish Charity Regulator.

If you are thinking of setting up a new Charitable Trust, you should seek legal advice. At Thorntons our team, including Accredited Trust Specialists, can offer you guidance on all aspects of trusts, including the mechanics of setting up and running a Charitable Trust.

It is worthwhile considering how your aims can be achieved most efficiently. Because of regulatory requirements, it can be more expensive to run a number of smaller charities all with roughly the same purposes rather than one larger charity.

Trustees have the powers given to them under a Trust Deed. There are also a few general powers given to them by legislation to help ensure all trustees have basic powers to allow them to fulfil their roles.

Trustees are responsible for looking after the trust assets properly, taking appropriate advice and acting on it. They hold the assets in essence as custodians and must look after the assets and manage them properly. They must not act in their own interests but rather the interests of the trust and the beneficiaries and there are strict rules about avoiding conflicts of interest.

Anyone who is an adult with full mental capacity can be a trustee.

Given the duties and responsibilities of the role, you should choose trustees who you trust to have the necessary skills and abilities to fulfil the job.

Trusts can offer significant tax advantages when part of a tax planning exercise, particularly in the context of succession planning, asset protection or making provisions for the next generation. However, the taxation of trusts is highly complex and you should always get specific advice for your circumstances and trust goals.

At Thorntons, we have experts in our team who specialise in trust taxation so we can advise you on the tax issues and trust options available to you.

How can Thorntons help?

The Private Client team at Thorntons has considerable experience in dealing with all aspects and types of trusts, including both charitable trusts and non-charitable trusts. Trusts can be a sound and sensible approach for many situations, and we can discuss the different options available to you and handle setting up a trust, Trust Deeds and ongoing trust administration for you.

We are always happy to meet you to discuss your needs and how a trust may achieve the outcome you want.

Call the Thorntons Private Client team on 03330 430150 to find out more about trusts and trusts administration. Or complete our enquiry form and we will contact you.

Thorntons Charitable Trusts

Thorntons administer a number of Charitable Trusts, which have been set up to support charitable organisations, community groups and projects benefiting our local communities. Individuals and charities are able to apply to Trusts for grants and funding throughout the year.

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