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A Trust can often be tax-efficient and help to benefit individuals later down the line. For example, any finances passing to relatives when they turn eighteen; or an allowance that is to be given each month to grandchildren; or a possession of particular value that is to be held onto for safekeeping.
Trusts can often be made to deal with a wide range of scenarios, but in order for them to succeed is dependent on careful planning.
What is a Trust?
In Lehman’s terms, it’s a legally binding arrangement whereby you can pass an asset (such as property, money, shares) to an individual, referred to as the ‘trustee’, to take care of for another individual, referred to as the ‘beneficiary’.
The trustee does technically own the asset and is then required to manage the trust for the beneficiary, who then receives the asset at a specified time.
Different Types of Trusts
It is vital to take legal advice when arranging a trust, as there are a range different types, and the most suitable type will be one which benefits from being most tax efficient and fitting for the individual.
There are a range of considerations when arranging a trust. The most common trusts are set up without difficulty, but others may be subject to specific legislation and changes in allowance, or even dependant on how a Will is structured.
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The basic trusts:
Interest in Possession Trust
The beneficiary is given an income from the asset but not given the actual asset itself.
An example here is a trust that is set up for a property that is rented with a partner who is the beneficiary of the trust for their entire life. In this scenario the partner is the beneficiary and is able to take the income from the actual property itself. When they pass away the rented property will then be given to a specified person, an example being their child.
A Bare Trust
This is a simple trust whereby everything is handed to the beneficiary outright once they turn 18.
This scenario is where part of the trust has certain provisions that are tailored to what is required from the settlor (the person organising the trust).
For example, a portion of the trust might be have the exact same terms as an Interest in Possession Trust, however a portion of the assets are treated differently under the rules of a separate trust.
This kind of trust gives power to the trustees to work out the distribution of the assets, and to make investment decisions inside the trust.
Vulnerable Person’s Trust
There are certain sets of circumstances whereby a trust such as this might be of tax benefit, with the beneficiary provided as a ‘vulnerable person’.