Wills and trusts
Trusts
It may also be beneficial for you to consider utilising trusts in connection with your pension and life assurance policies as well as other assets which, in certain circumstances, may save inheritance tax and speed the release of monies to your intended beneficiaries.
TRUSTS - General Guidelines
Trusts can play an important role in both financial and tax planning. They are mechanisms that can ensure property is held for the benefit of other people without allowing them full control over it. A Trust is established where an asset is transferred by an individual (the settlor) to another (the trustee) who must hold and administer the gifted asset (the trust fund) for the benefit of specified people (the beneficiaries) in accordance with the terms of the trust.
When to use a Trust?
A Trust can be used to:
- Make gifts to both adults and minors, whilst ensuring:
a) that control of these assets rests with the trustees and
b) that they are not misused or wasted by the beneficiaries
c) and ensure that a gift reaches the individual(s) intended by you to benefit from it, at any
future time.
- Help minimise inheritance tax liability
- Avoid the need for Probate on your estate, speeding up the administration process.
Who can create a Trust?
The settlor or individual who establishes a trust must be over 18 years of age and of full mental capacity. A trust will normally have one settlor and more than one trustee.
For tax purposes, you will be regarded as the settlor where you provide assets to a trust either directly or indirectly.
Who can act as a Trustee?
Any individual (over 18 years of age and of full mental capacity), or a trust corporation may be appointed as a trustee.
A settlor can also be appointed as a trustee, which means control over the trust fund is maintained during the lifetime of the settlor.
It is usual for a trust to have no more than four trustees, for ease of implementation, as trustees must act unanimously.
How are trustees appointed or changed?
The settlor holds power to appoint trustees in the trust provisions. Initially, trustees are appointed on establishment of a trust, and at any time subsequently, new or additional trustees may be appointed. A trustee can retire as long as there are at least two trustees, or a trust corporation, remaining in office.
What are a trustee’s duties?
In order to comply with their principle responsibility (to administer the trust fund for the beneficiarie's benefit), a trustee must know the terms of the trust, the identity of the beneficiaries and the assets held therein. A trustee must ensure that one beneficiary does not benefit at the expense of another, unless the trust deed specifies this.
What investment powers do trustees hold?
Sometimes trustees are given powers of investment by the trust provisions. This can include investment into life assurance policies.
Trustees concerned about the extent of their powers should take legal advice.
How long can a trust last?
A trust can last until all of the trust fund has been distributed to the beneficiaries up to a maximum of 80 years.
Can a trust be terminated?
In some circumstances this may be possible subject to the appropriate level of legal advice being sought and to all parties (being over 18 years of age, of full capacity) being in full agreement. A trust may specify that the settlor’s consent is required before the trust can be ended.
Can the beneficiaries be changed?
It is not generally possible to change beneficiaries where they have an absolute entitlement to benefit unless the trust deed has given the trustees power to vary the persons who can benefit within a defined group of potential beneficiaries and to decide the shares in which the benefits are to be held.
Can payments be advanced to the beneficiaries?
The trust may either specify that income must be used for the benefit, ie., maintenance and education of the beneficiaries, or may give the trustees discretion to accumulate income from it.
The trust will also specify how the trustees should deal with the trust capital. This might include specifications about the age when a beneficiary becomes entitled to capital.
This summary is prepared for information purposes only. HFM Columbus does not and cannot provide advice and cannot accept any responsibility for any loss occasioned by any individual as a result of any action taken or refrained from in connection with this summary.