Trusts and Asset Management

A trust is one of the best ways to make provisions for somebody else later in life. You can use a trust to put money aside for your children’s education when they reach a certain age, help a loved one financially if you pass way, or even to pay for any care that you may one day require.

In general, trusts are a form of asset management – pertaining the management of personal assets and the assets of those who are unable to manage their affairs. Certain uses of a trust and the responsibilities of trustees are regulated under the Trustee Act of 2000.

The Three Parties Involved in a Trust

A trust is established between three separate parties, each with a different purpose and set of responsibilities, these are:

Settlers – The person/people responsible for putting assets into the trust

Trustees – The person/people responsible for managing the assets in the trust

Beneficiaries – The person/people who will receive the assets from the trust

Once the settler has put assets into the trust, the trustee legally becomes the owner of the assets. This is why it’s so important to choose the trustees wisely. A trustee could be a friend, relative, or a professional, such as a top London lawyer. It’s possible to appoint a single trustee, or multiple trustees.

Trustees will adhere to the wishes of the settler and maintain the trusts, such as paying any tax that is owed. The beneficiaries will receive any income that the trust generates, such as in the case of a rental property, and where applicable, receive the assets, such as when in a will.

The Purpose and Types of Trusts

Trusts are not one-size fits all, there are different types of trust to fit the varying reasons that you may choose to establish a trust. It’s important to choose the right trust to manage your assets, particularly in terms of the requirements for taxation.

There are many reasons why you may choose to set up a trust to manage your assets, these include:

  • In accordance to inheritiance law in the case of intestacy in England and Wales
  • Asset management for under-age children or people unable to manage their affairs
  • To give away assets when you pass away or later in life
  • To better control assets belonging to a family
    Depending on the purpose of the assets, there are different kinds of trust that you can choose from, these include:
  • Non-Resident Trusts
  • Bare Trusts
  • Mixed Trusts
  • Interest in Possession Trusts
  • Settlor-Interested Trusts
  • Discretionary Trusts
  • Accumulation Trusts

Understanding Trusts and Taxes

Tax is a big consideration with trusts, whether you’re the settler, trustee, or beneficiary of the trust. There are three types of tax that are normally applicable for trusts, dependent on the exact assets within the trust and when the beneficiary will gain access to the trust:

  • Capitial Gains Tax
  • Income Tax
  • Inheritiance Tax
    Inheritiance tax in one of the main taxes that may need to be paid on the trust. The requirement to pay this can occur when the assets are initially transferred to the trust to be held, when the trust has been established for 10 years, when assets are removed from the trust, the trust ends, or when the trust must go through the standard processes that occur during the execution of an estate after a death.

When an asset is removed or added to a trust, and it has increased in value, then Capital Gains Tax may need to be paid. For Income Tax, whilst the rate of tax may change depending on the type of trust, it normally needs to be paid when the assets in the trust have generated an income over the threshold.

Establishing a Trust

Setting up a trust is a complex legal matter, whereby the exact wording of the trust needs to be precise and correct. Due to this, it’s normally highly advised to seek professional legal representation, in the form of a solicitor trained in trust law, to create the legal documentation required to establish the trust.

If you would like assistance relating to any matters involving trust law, trust establishment, or need advice about where you stand as any party within a trust, please don’t hesitate to contact our top London lawyers at Gulbenkian Andonian .