What exactly are they, and why would I need one?
Trusts are one of those things that many people have heard of but not many know what they actually are and what they are used for.
At it's simplest a trust involves one group of people (the trustees) looking after something (money or property for example) for another person or group of people (the beneficiaries). The Trustees owe a duty of care to the beneficiary(ies). That's OK but it doesn't tell you what they are actually used for and why you would want to have one.
Many people would think of trust funds, set up people by people with quite a bit of money, to ensure there is money for their children when they reach certain ages. However that's just one example of how and why a trust could be set up. Here are a few more:-
To control and protect family assets
So for example you might want to give someone the right to live in a property but you don't want them to be able to sell it - you could set up a trust to do this.
When someone is too young to handle their affairs
You aren't legally allowed to own property until you are 18 so if you've been given it at a younger age then the property is normally held in trust until you are 18 (or 21 or whatever age is stated in the trust deed/Will)
When someone can't handle their affairs because they are incapacitated
A Trust deed allows someone else to take care of the administration of that person's affairs - maybe drawing out housekeeping money. It can also be used for people who are on benefits where they have inherited some money and it is in danger of affecting their benefits. If the money is put into a trust fund so that they can't get at it immediately then it can be excluded for the purposes of calculating the benefits.
To pass on money or property while you are still alive
This can be done for tax reasons - if you make a gift to your children whilst you are still alive then (provided you survive for the folowing 7 years) it will be excluded from your estate for the purposes of paying inheritance tax. However you might not want to just hand the money over (you may be concerned what your children might do with it!). In these circumstances you could put the money into a trust fund. It has left your estate for tax purposes and the children will get it under whatever conditions you attach to the trust. Also see our Asset Protection Trust factsheet, which can be used to protect against future threats to your estate and property.
To pass on money or assets when you die under the terms of your Will - known as a 'Will trust'
This can be an age related thing - preventing the children getting the property until they reach (say) 25 or 30. It is also often used to benefit children by a previous relationship on your death (so for example you could let your spouse live in the family home but after she dies then your share of the property goes directly to your children from a previous marriage - this is just an example, but you can read more about Will Trusts here )
Under the rules of inheritance that apply when someone dies without leaving a valid Will.
If you die without leaving a Will then the rules that govern how your property is split up (known as the rules of intestacy) will often involve creating trusts - usually to deal with people who are due to inherit something but aren't yet 18
If you are injured in an accident and receive compensation this is usually paid as a lump sum. If you are currently in receipt of benefits then this could cause you problems and even stop your benefits. A Personal Injury trust deed can help to get around this problem
Trusts can be incredibly simple, or incredibly complicated. They might be used to protect an asset from possible future threats (see for example, again, our Asset Protection Trust factsheet), or be used to manage assets on behalf of someone who can’t manage the assets themselves (for example someone who is mentally incapable, or a child). If you have a situation you feel a Trust would be suitable for, please give us a call for advice or use the link at the top of this page to get in touch.