What is the right type of Trust for me?
There are many different types of Trusts to choose from. A Solicitor will discuss your circumstances and objectives to discover which one to use. The main types of Trust structures are:
Bare, simple, or absolute Trusts
This type of Trust is the simplest kind. The Settlor will transfer assets into the ownership of the Trustee/s, who will manage it on behalf of the Beneficiaries. The Beneficiaries have an absolute right to the income and capital of the Trust. In most cases, the Beneficiary cannot be changed once the Trust has been set up and the Trustees are not required to perform any specific tasks.
Interest in Possession Trust
An Interest in Possession Trust allows a Beneficiary to have an interest in the income generated from a Trust. For example, if the Trust contained a property portfolio, the Beneficiary would be entitled to the rental income generated from the property. However, they would not be entitled to the capital (the properties themselves).
If the Beneficiary is entitled to the income for the duration of his or her life, he or she is known as a “Life Tenant”.
This type of Trust is commonly used to provide a life income for a spouse, and on their death, the capital of the Trust passes to the children of the Trustee.
Discretionary Trust or Accumulation Trust
Discretionary Trusts or Accumulation Trusts give Trustees the discretion to decide how the Trust’s income and capital are used. The Trustee/s must run the Trust for the benefit of the Beneficiaries. In an Accumulation Trust, the Trustee/s can accumulate the Trust’s income up until the Beneficiary is legally entitled to its capital and/or income.
Discretionary Trusts are useful if the Settlor is unsure of the type of support each Beneficiary will require in the future. For example, a couple may wish to set up a Trust to benefit their grandchildren, some of which may have yet to be born. It is impossible to know the needs of future generations; therefore, a Discretionary Trust can provide the Trustees with the power to make decisions based on each Beneficiaries individual requirements at the time.
Note: the tax relief associated with the Residential Nil-Rate Band may be lost if the family home is included in a Discretionary Trust. Talk to your Solicitor to ensure you do not miss out on this key relief if your primary residential home has been put into a Discretionary Trust.
Vulnerable Beneficiary Trust/Disabled Trust
If a Beneficiary to a Trust has mental and/or physical disabilities, this type of Trust can allow for certain tax advantages, such as special treatment for capital gains taxes and income taxes.
These are a mixture of different types of Trusts, for example, a Settlor can put a proportion of the assets within a Discretionary Trust, which allows for distribution of capital and income, but keep some assets as Interest in Possession, entitling the Beneficiary to the income only. These types of Trusts are useful for tax planning purposes and in cases where Beneficiaries reach the age they are legally entitled to benefit from the Trust at different times.
A Settlor-interest Trust is set up to allow the Settlor themselves (and their spouse or civil partner) to benefit.
The Trust could take the form of:
- an Interest in Possession Trust
- an Accumulation Trust
- a Discretionary Trust
As people are living longer, they risk having more years of their life given over to ill-health. This type of Trust can ensure you and your spouse have an income if you are unable to work for a period.
So, which trust is suitable for me?
The start of a New Year is a good time to put into action plans to protect your family’s wealth. Choosing the right type of Trust is vital to ensuring the objectives you want to achieve are met. Guillaumes Trust and Probate Solicitors will advise you on the best structure for your Trust, based on your individual circumstances and goals.
Please note, this article does not constitute legal advice.
Guillaumes LLP Solicitors is a full-service solicitors in Weybridge. We have a highly experienced private client team who can assist you with all matters relating to setting up a Trust. To make an appointment, contact our professional team today.