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.
There are three main parties involved in a trust agreement.
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.
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.
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.
There are a number of reasons why a person may want to create a trust for those left behind. It could be:
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.
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.
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.
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.
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.
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.
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.