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Estate planning: Everything you need to know about trusts

If you are looking to start planning for your estate or if you have been named as a beneficiary, it is important to understand trusts.

What is a trust?

A trust is a legal arrangement for managing assets. It is important to consider that different types of trusts as they are taxed and operated differently.

A trust can include many different assets such as money, property, land or shares.

  • A Bare Trust – is designed to pass assets to young people, the trustee will look over this until the beneficiary is old enough.
  • An Interest in Possession Trust – is one where the trustee must pass on all trust income to the beneficiary as it develops.
  • A Discretionary Trust – is where the trustees can make certain decisions about how to use the trust income and capital.
  • An Accumulation Trust – is when the trustees can accumulate income within the trust and add it to the trust’s capital.
  • A Mixed Trust – is a combination of more than one type of trust.
  • A Settlor-Interested Trust – is where the settlor or their spouse or civil partner benefits from the trust.
  • A Non-Resident Trust – for when the trustees are not resident in the UK.

Why might a trust be set up?

A trust can be set up for a range of reasons. This includes when a beneficiary is too young to handle their affairs, to protect family assets, or if someone dies without a will.

Who handles a trust?

There are a number of people involved in a trust.

Firstly, there’s the settlor. This is the person that decides how the assets in a trust should be used. This person may also benefit from the trust.

There is also the trustee(s), who must ensure the assets are dealt with according to the settlor’s wishes. They are also responsible for paying tax on the trust and abiding by strict trustee rules and legislation.

Finally, there are the beneficiaries. There may be one or more beneficiaries, these are the people who will benefit from the income or capital of the trust.

How to set up a trust

If you are interested in setting up a trust or need advice on a trust, you should seek advice from a solicitor.

If you need advice on related matters, contact us today.

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