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Wills & Estate Planning

Trusts

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Trusts

A Trust is a legal document created by an individual (the settlor) which gives another party (referred to as a trustee) the responsibility to hold and manage the trustor’s assets and property on behalf of a named third party (called a beneficiary). It can also be defined as a financial agreement between the trustor and the trustee to hold assets on behalf of the beneficiary. Contrary to common misconception, it is not just the wealthy people that have a need for trusts. As long as you have assets that can require supervision and distribution when you are no longer alive, you also stand to benefit from having a trust in place.

Parties Involved in a Trust

There are three main parties involved in a trust agreement.

The Settlor

This is the individual who creates the trust agreement and bestows the trustee the right to handle the assets on behalf of the third party.

The Trustee

This is the person who manages a trust and all assets and properties involved which the testator has given them temporary power to control. They are named in the agreement and have full responsibility for the assets the trustor gives them.

The Beneficiary

This is the person who receives the advantages of the trust. The assets stated in the trust are given to them when the terms are met.

Reasons for creating a Trust

There are a number of reasons why a person may want to create a trust for those left behind. It could be:

  • simply not wanting the beneficiary to have access to the assets as soon as they reach the legal age of 18 or 21
  • Minimizing hassles and all forms of fees for their loved one
  • Creating a comfortable future for their loved ones, or
  • Leaving behind a legacy of charitable giving

In addition to these, you can contact a lawyer or financial advisor to help you create a trust in order to reduce taxes, protect your assets and also protect your beneficiaries (for example your children) from going through the probate court process to divide your assets when you die. 

A trust also gives you the power to decide to whom your assets will be disbursed and also how it will be disbursed. In the case of monetary assets, it can determine how the money will be paid out and in what frequency (if any). This is crucial if the beneficiary is a child or an individual who has a questionable character with money.

Types of Trusts

There are a number of different types of trusts but they all have the foundational idea of a three-party agreement where the trustor gives the trustee rights to hold assets or property for a beneficiaries.

Standard Discretionary Trust

A Discretionary Trust is one in which the Trustees have the full decision-making powers of how the trust property will be shared. A Discretionary Trust within a will does not become effective until after the death of the settlor, after which the assets in the trust are then transferred to the Trustees. Trustees of a Discretionary Trust can hold or distribute the assets held to an established list of beneficiaries. A letter of wishes is recommended so that the Trustees have relevant information to guide their decisions.

Property Protection Trust (PPT)

This is a type of trust inserted into a Will that lets the settlor to bestow a lifetime tenancy of a property upon a beneficiary or group of beneficiaries, making them Life Tenants. This means the tenants never own the property outright but retain the rights to residence and any property income as long as they are alive.

The Right of Residence Trust (RoRT)

This is similar to a PPT but the period of interest in the property is not guaranteed over a lifetime. The settlor uses a RoR trust or Right of Occupation Trust to ensure that the residence is never owned by the beneficiary and to limit the period of occupation until the property is transferred to other “remainderman” beneficiaries stipulated in the will.

Flexible Life Interest Trust (FLIT)

FLITs encompass both the main residence and personal holdings and give a lifetime interest to a chosen beneficiary as a Life Tenant. The beneficiary never owns the assets but enjoys the occupation and benefits until the termination of the trust and the transfer of the rights to the ‘remainderman’ beneficiaries as provided in the Trust.

You can create a trust today to protect your family and friends from unnecessary incidences after your passing. Ensure you contact a trusted and certified professional to act as your trustee.

How can we assist?

Our Wills and Estate Planning team at City Legal can help you set up wills and trusts with a view to protect your estate and provide you with Inheritance tax planning advice. We can also assist for the safe storage of your Will. We are a multi award winning law firm and pride ourselves in being approachable, innovative and always going that extra mile to make sure our clients receive the individual attention they deserve. Our estate planning team maintains a high reputation and is committed to provide clear, transparent and reliable advice to our clients.

Frequently Asked Questions

What is the advantage of having a trust?

A trust is a great way to ensure that your family, friends or beneficiaries are well taken care of after your death. You are assured that they will not have to go through a rigorous probate process or have to deal with paying lots of taxes and fees.

How do I set up a trust?

First, you would need the help of your lawyer to draw up the terms of agreement stated by you. This would then be signed by you, the settlor, and a trustee (this could be a financial institution). The trustee then collects the assets and deposits into a trust account. The set up varies with different types of trusts.

How do I know what type of trust is best for me?

Because there are many types of trusts, it would be best to seek the advice of a professional to help you fully understand the meaning and advantages of each type of trust. This would help reduce any instances of regret later as some trusts are irrevocable. At City Legal, we can provide you with a suitability report on the basis of your circumstances and recommend the necessary trusts.

Must I be super-rich to set up a trust?

No. Having a trust is not reserved for only the rich and influential. Simply find a trustee that can handle whatever amount of assets you have and get a lawyer to draw up the terms.

How do I choose a trustee?

An important factor you should look for in a trustee is experience. Someone or an organization that can provide financial security for you and those you leave behind. It should ideally be someone with the right level of experience to carry out things that you wish to do after your death.
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