They are a frequently used way of protecting assets for young people until they are capable of taking control of the assets for themselves. Trusts can also be a way of reducing the inheritance tax payable on your estate, if planned and prepared properly.
A trust can be made during your lifetime, but also many people establish a trust through their will.
The terms of the trust – dictating the limits of the power and authority of the Trustees and when the beneficiaries can have access to the assets – are confirmed in writing.
There are many types of trusts for different purposes which each have their own tax rules. Some of the most-commonly created are:
- Trusts for minors – under 18s.
- Pilot trusts – for inheritance tax planning purposes, intended to receive pension funds or the proceeds of a life policy to present them from being taxed, unlike estate of a surviving spouse.
- Life interest trusts – providing funds for the lifetime of one person.
- Discretionary trusts – where there are a number of people who can benefit at the trustees’ discretion.
- Trusts for disabled persons – specially designed to give favourable tax considerations.
- Charitable trusts – providing income for charitable concerns.
- Bare trusts – held for children or adults unable to look after the money themselves.
- Personal injury trusts – set up as discretionary or bare trusts to benefit someone who has received a cash settlement following injury to allow them to continue receiving benefits.
- Declarations of trust – used to define how proceeds from the sale of property would be split if one party has put more into the purchase than the other.