Established 1976


	Home
	Investment
	Wealth creation
	Mortgages
	Retirement income
	Corporate
	About us
	Contact us

Ever thought of setting up a trust?

You don’t have to be super-rich to set up a trust fund. Discretionary trusts can be highly useful estate planning tools.

A trust is a legal arrangement whereby one person (the settlor) gives assets to another person (the trustee) to be looked after for a third person (the beneficiary). Trusts are worth considering to:

Make investment gifts to children.
Ensure assets pass to your intended beneficiaries at an appropriate time.
Safeguard long-term investments and inheritance tax planning.

Trusts also offer a means of holding and managing money or property for people who may not be able to manage it for themselves, for instance, as a way of making long term financial provision for a disabled child. When you put assets into a trust, they are no longer legally yours but become the property, in title at least, of the trust itself, and the trustees assume responsibility for the management of these assets.

Discretionary trusts

The trustees of a discretionary trust decide how much income or capital, if any, to pay to each of the beneficiaries - but none has an automatic right to either. Discretionary trusts have great benefits for minimising tax and ensuring the safety of the contents of the trust. They are highly flexible as the settlor has significant freedom in setting the terms, and the trustees can pay out income or capital at their own discretion.

Why should I set up a trust?

Sarah puts money into trust, to be held for 20 years, for the benefit of her two grandchildren, Amy and Ben. The trustees can decide how to invest or use the money and any interest it earns to benefit the grandchildren. So, when the children are young, the trustees might decide to pay for piano lessons for them. As they get older, the trustees might pay towards a wedding. After 20 years, the trustees wind up the trust and distribute all of the money to Amy and Ben.

You can also use a discretionary trust as a way to pass on property while you’re still alive and still keep some control over it through the terms of the trust deed. Or it can be used in conjunction with a life assurance plan to ensure that most, or all, of the plan proceeds will not be liable to inheritance tax.

Appointing trustees

As a result of the relative power given to trustees in a discretionary trust, it is important to think hard about who should be appointed. Guidance for the trustees is usually achieved by leaving a “letter of wishes” with the will. Such letters are read alongside the will, though they are not binding on the trustees.

It is quite normal for such a letter to state that the first aim for the trust is to ensure adequate provision is made for the surviving spouse or civil partner for the remainder of his or her days. The letter will usually say what is desired to happen thereafter, such as passing assets to the children. It is important that professional advice be sought when establishing a discretionary trust, in order to ensure that all the vital documentation is completed correctly.

If you would like to discuss how setting up a trust could be suitable for your own situation, please contact us to arrange a meeting. We can help review your life assurance plans and see how placing some in trust may be of benefit.

This article was taken from Seneca Reid's Spring 2009 newsletter.

Seneca Reid is a trade name of Andrew Charles Reid Smith who is an appointed representative of Openwork Limited which is authorised and regulated by the Financial Services Authority.

The information on this website is for the use of residents of the United Kingdom only. No representations are made as to whether the information is applicable or available in any other country which may have access to it.

Openwork Limited offers insurance and investment advice on products from a limited number of product providers and advice on mortgages representative of the whole market.