A trust is an arrangement where one or more “trustees” are responsible for holding assets such as money, property, shares or investments and looking after them for the benefit of others known as the “beneficiaries”. Trusts can be used in all sorts of situations and for various reasons, often to save tax.
There are a variety of different trusts available depending on your individual circumstances. Some are effective during your lifetime, others are triggered when you die.
Trusts are most commonly used:
- To protect and control your family’s assets
- Where you do not want someone to inherit assets until they reach a certain age
- Where the beneficiary is incapable of looking after their own financial affairs
- To pass on money or property while you are still alive
- To pass on money or assets under the terms of your will when you die (“will trusts”)
- Under the Intestacy Rules which apply when someone dies without a valid Will
Trustees are the legal owners of the assets held in a trust. Their role is to deal with trust assets in accordance with the trust deed, manage the trust on a day-to-day basis, pay any tax due on the income or chargeable gains of the trust and decide how to invest the trust’s assets and/or how the assets should be used.
A trust can continue even though the trustees might change. However, there must be at least one trustee at all times and for this reason, it is good practice to appoint a minimum of two trustees. Very often one trustee will be a professional familiar with trusts, such as a solicitor, while the other is a relative. Bhogal’s& Co. Solicitors frequently act as trustees for our clients.
WHAT ABOUT THE TAX CONSEQUENCES?
The type of trust arrangement in place, and the nature and value of the trust assets, will impact on the tax liability. Calculating the tax consequences of creating and managing a trust can be complicated. We recommend specialist legal advice about the type of trust which best suits your circumstances and the tax implications.
WHAT IS A PILOT TRUST?
A pilot trust is a trust that is often set up for tax planning purposes during the lifetime of the Settlor (the person making the trust). A small amount of cash (typically £10) is put into the trust with the intention that further assets will be placed into the trust at a later date, for example death benefits under a pension scheme.
It takes its name from the fact that the initial amount of cash used to set it up acts as a “pilot flame”. This ensures that the trust can exist, often for many years, without triggering any tax or reporting problems.