Common Legal Questions: Trusts
Posted on 2nd January 2020
Our team of Wills solicitors in Preston often get approached by clients who want to create a trust. Unfortunately, a lot of information on the internet seems to give our clients the idea that they need a trust and that it will solve all of their inheritance tax problems/family dispute problems/any other problem you can think of to do with estates. Sadly, a trust isn’t always the answer, and whilst in many circumstances (and when drafted properly) they can be worth their weight in gold, in many cases, implementing a trust may cause you more issues than you realise.
There are LOTS of different types of trust that can be set up, and they all vary depending on how you want to control your assets, including:
Seen as one of the simplest forms of trust, a bare trust gives all of the assets to your chosen beneficiary, providing that they are in England and Wales, and over the age of 18. The assets are usually held in the name of the trustee (the person appointed to control the trust), but the beneficiaries have a right to the assets as soon as they turn 18.
A bare trust can be quite common, as they allow trustees to hold assets until the beneficiaries turn 18, which is great if you want to give assets to a minor. However, like all trusts, a bare trust can have its drawbacks.
If you appoint trustees who all live out of the country, a non-resident trust is established. This can mean that any beneficiaries pay less income tax on the assets. Again, this trust type isn’t the best type for everyone.
Trust for a vulnerable person
This type of trust can be beneficial if the beneficiary doesn’t have mental capacity, or is vulnerable, for example someone who has a disability or is left without parents. Again, this type of trust helps in some cases, as the beneficiaries pay less tax on the income from the trust.
With a discretionary trust, the trustees have full control over the assets, and any income from the trust, and they can decide how and when they give the beneficiaries any money; the trust is completely that - at their discretion. In some cases, people desire this type of trust for their grandchildren or children, to prevent their assets from being spent in one lump sum.
Interest in possession trust
With an interest in possession trust, the beneficiary can benefit from the income of the trust immediately, but they have no control over the assets that provide their income. Beneficiaries also have to pay income tax on any money that they ‘earn’ from the trust. In some situations, partners who have children from outside of their relationship, may wish to allow their partners to benefit from the assets of the trust (so they would receive the income), but the assets would pass to their children on their partner’s death, or after a specified amount of time.
This type of trust combines lots of elements from different trust types, so it could give the beneficiary a right to the income for half of a trust fund, or a quarter.
If any of these options seem like something that would suit you, our Wills solicitors in Preston would suggest the obviously: always use a solicitor.
Unfortunately, when people attempt to draft trust documents themselves, they can find that the trust is set up incorrectly, or they have not thought about the implications of a certain aspect of the trust, leading to issues for both the trustees and the beneficiaries. MG Legal’s team of will-writing experts see this all too often, and sometimes when it’s all too late.
As our team would explain to everybody attending upon our Preston office wanting to set up a trust, generally, when the assets are written into a trust, the previous owner of the assets loses their rights over the asset. This means that if the settlor (or person creating the trust) wanted to sell their assets, such as a property that they have placed into trust, they will no longer own this, so they will not be able to.
Are trust assets taken into account for care home fees?
Yes. If you need to go into a care home for longer-term care, any trust that you benefit from can be taken into account by the local authority. It will depend how the trust was set up, but if you’re entitled to a lump sum (capital money) from the trust, and the income, both of these figures will be accounted for when you’re being assessed.
If I place my assets in trust, does this mean that the local authority cannot take account of them?
A common misconception seems to be that you can put your assets into trust and avoid paying care home fees. Unfortunately, that’s not the case. If you put your property and assets into trust, and then need to go into care, the care home can contest the trust. If they are successful, the assets in the trust may be used to assess your eligibility for care home fees regardless!
How does a trust end?
Normally, the ways and means of ending the trust are incorporated into the trust when it is created. Other ways that trusts can end depends on how they are set up, but can include if a beneficiary attains the age of 18, the death of a beneficiary or by the decision of the trustee.
Our local Wills solicitors can help you to decide if you can end the trust, as a trustee, by confirming that you have carried out the purpose of the trust by ending it, kept records of all of your actions as trustee, given the assets to the correct beneficiaries and reported correctly on any tax, and ensured that this is paid.
Any general information provided by our local Wills solicitors does not constitute formal legal advice, and our team would always suggest having a full discussion with one of our solicitors before contemplating setting up a trust. Afterall, everything in a trust needs to be precise and properly written, or else you could end up causing issues for your loved ones. Also, any trust should be carefully considered to ensure that it properly reflects your intentions, and covers you as the settlor.
Contact our expert team at email@example.com to enquire about an initial appointment, or get in touch with the Wills team, here.
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