An introduction to Trusts – what is a Trust?
Trusts, all to often, conjure up images of palatial estates, landed gentry and Hollywood films featuring teenagers ‘vacationing’ in Europe. They also have an air of mystery. The truth is that trusts can be relevant and suitable to anyone depending on their circumstances.
Trusts are, at their most simple, a formal arrangement by which an asset is given to someone to hold and manage for the benefit of someone else. The person who looks after the asset is known as the ‘trustee’ and the person for whom they are looking after the asset is known as the ‘beneficiary’.
Trusts are usually created in one of two ways – either on your death by your will or during your lifetime by way of a deed.
It is not possible to list all the circumstances in which a trust might be appropriate for you, but a common example is if you wish to leave money to a person in your will who lacks the capacity to manage the funds themselves. In this case, the trustees would look after the money on behalf of the beneficiary and make decisions in the best interests of the beneficiary when it comes to how the asset is invested and paid out.
Another reason may be to protect assets in the event of a family member going through a divorce or bankruptcy. For example, you may have planned to leave your estate to your children in your will but currently one of your children is experiencing marital difficulties. Should you die and then your child subsequently goes through a divorce, the share of your estate that has passed to the child would count amongst their assets when it comes to any financial settlement. To mitigate against this, you could create a trust within your will so that a share of the estate does not pass to your child directly but is held on trust for them.
There are many other reasons to create a trust either during your lifetime or in your will – tax planning, to ensure an inheritance is held until a child reaches a certain age, to look after a spouse during their lifetime but to then ensure the assets pass to your children or other chosen beneficiaries, to name but a few.
In my next post, I will outline the process of creating a trust during your lifetime but please do not hesitate to contact a member of Sintons award winning Wills, Trusts and Estates Team should you wish to discuss creating a trust in the meantime.