What is a Trust?

A trust is a legal agreement where a person, known as the settlor, transfers the ownership of his or her assets to another party – a trustee.

The trustee holds the assets for the benefit of a chosen person or a group of people – the beneficiary/ies – without giving them full access to the assets for the time being.  For example, a parent can act as a trustee for their child.

Who is involved in setting up a Trust?

There are normally three parties involved in setting up a trust:

  1. the Settlor.  The settlor sets up the initial asset e.g. an insurance or pension contract and then transfers the ownership of the assets to
  2. the Trustee.  The trustee is the legal owner of the assets who holds and manages them for the benefit of
  3. the Beneficiaries.  The beneficiaries are the individuals or groups of people selected by the settlor to receive the benefits of the trust.

Difference between Will and Trust

Many people believe a Will is as effective as a trust, but this is not always true.  As well as being more effective than a Will for mitigating IHT, using a trust has other advantages.

Wills  Trusts
Only effective on death
Wills only come into effect on death and therefore are at risk from changes in legislation.
Immediately effective 
Trusts provide certainty, as they are immediately effective.  Changes in legislation will not normally affect existing trusts.
Probate still needed
Even when a person has made a Will, probate is still needed.
No probate
Assets under a trust are not subject to the delay of probate, as long as there is a surviving trustee. Extra legal costs are usually involved in running a trust.
Extended administration
With the assistance of one of our strategic partners, we can help you arrange a Will that is correctly worded. We can also help you plan your investments.
Simplified administration with
a trust is possible to organise investment and estate planning together-we offer different trusts for different asset classes.
Wills become public on death, so everyone can see who received what.  This is not ideal in complex family situations.
Trusts are confidential.  Details are not available to the public.

Who can be a Trustee?

In general, you, the settlor, can appoint individuals or a corporate trustee.  The trustees could be another family member or a close friend.  It should be someone you can trust.  The basic rule is that a trustee must be at least 18 years old and of sound mind.  The named trustees must also accept the appointment for it to be valid.

You can appoint yourself as a trustee as well.  This gives you some control over the trust property during your lifetime.

How many Trustees does the Trust need?

It’s a good idea to have at least two trustees (in addition to yourself).  This ensures that control of and access to the trust fund continues following your death and that a claim can be paid without waiting for probate, provided that at least one trustee is still alive.  If there was only one trustee and he or she died, then the administration of the trust would be transferred to the deceased trustee’s legal personal representatives.

A professional Trustee services

In some circumstances, you may have to appoint an independent trustee to exercise certain powers within a trust.  The trust provisions will say if an independent trustee is required.

What are the duties of the Trustees?

The trustees must carry out certain duties.  The main responsibility is to look after the trust property in accordance with the terms of the trust and trust law.  The trustees must administer the trust honestly and impartially for the benefit of all beneficiaries.

The trustees must make any decision about the trust collectively.  If one trustee disagrees with a proposed course of action, it cannot go ahead, unless the trust provides for a majority decision.

If the trustees act in a manner, which the terms of the trust do not allow, there will be a breach of trust for which the trustees may be personally liable.

Are Trustees paid for their duties?

Professional trustees, such as lawyers, accountants or a trust corporation, can receive payment for their duties when administering the trust, providing the trust has clauses to allow for this.  However, a trustee is not normally allowed to make a profit out of his or her duties.

Who can appoint Trustees?

Generally you, the settlor, will have the power to appoint additional trustees.  You can do this throughout your lifetime and then the right will be transferred to the remaining trustees.  New or additional trustees can be appointed at a later date.

Can a Trustee retire?

A trustee can retire from trusteeship as long as all the trustees agree to his or her retirement.  The person who has the power to appoint additional trustees, normally you, the settlor, must also agree.

Often, there is no need to appoint a replacement trustee at the same time as one retires.  However, if that would mean only one trustee remains (other than a corporate trustee), then an additional trustee will need to be appointed before the other one retires.

Is it possible to remove a Trustee without their consent?

The trustees are able to remove another trustee either by statutory removal or by obtaining a court order to this effect.  It is therefore important you choose any additional trustees with care.

Can you, the settlor, benefit from the Trust?

You, as settlor would not be included as a beneficiary.  The reason for this is that the life assurance policy premium payments would be treated as gifts with reservation for IHT purposes.  This means the value of the trust property would be treated as part of your estate for IHT purposes.

Can the Trustees pay regular withdrawals to the beneficiaries?

It is not wise for trustees to pay regular withdrawals from an investment bond to the beneficiaries.  Regular withdrawals may be treated as income by the Inland Revenue and therefore liable in full at the time of payment, to income tax.  However, the trustees can make a one-off withdrawal to a beneficiary if sufficient proof of his or her right to the trust property can be provided.

Can the settlor change the beneficiaries?

The trustees will have total control over the trust funds and the discretion to pay out monies to whomever they feel it appropriate, form the various classes of beneficiaries.

This means that should any beneficiary in the future be in receipt of state or local authority benefits the entitlement to money from the trust fund will not stop these benefits being paid to the beneficiary. Of course, there is a further benefit which means that should your spouse/partner become involved in any further relationship following your death the assets within the Discretionary Trust will be protected from this third party acquiring them.

What happens if the beneficiary dies?

Because potential beneficiaries do not have a right to the trust assets if a beneficiary dies, none of the value of the trust property will be included in his or her estate for IHT purposes.  This would not be the case had an Interest in Possession trust been used.

How long does a Trust last?

In English law, a trust cannot last forever and it must be closed within 125 years.  This is known as the perpetuity period (Perpetuities and Accumulation Act 2009). The trust period for a trust document established in the UK is a fixed period of 125 years from the date of declaration of the trust.

Can the settlor end a trust?

Once you have written a policy under trust, you have no power to end the trust other than in your capacity as a trustee.  The only action you can take is to stop paying the premiums for affected policies.

The trustees may be able to advance all the trust property to beneficiaries so nothing is left in the trust, thus bringing it to an end.

Do I need advice to set up a Trust?

Yes, Trusts, as you can see from all of the above, can be complex and require experienced advice and help to obtain the many benefits they provide.

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