Planning Ahead: The Role of Trusts

When planning ahead, many people focus solely on their Will. While a Will is essential, it may not always provide the level of protection or control you want in place. Trusts are often overlooked when it comes to estate planning, yet they can play a crucial role and are a valuable tool to safeguard your assets, support loved ones and ensure your wishes are followed. Importantly, trusts are not only used to protect assets after death, they can also be established and used during your lifetime.

This article aims to explain what a trust is, the benefits it can offer, and why you may wish to consider having one in place if you do not already have one.

A trust is a legal arrangement where assets are placed under the control of trustees for the benefit of named beneficiaries. The legal term for the person who creates a trust is the “Settlor”.

Once assets are placed in a trust, the Settlor no longer has direct ownership, but instead the trustees legally own and control the assets and must act in accordance with the trust deed.

There are a range of assets that can be held in trust; these include:

• Money and savings
• Property
• Investments
• Business or personal assets

One of the key advantages of setting up a trust is the added protection it offers for your assets. Trusts can help shield wealth from risks such as divorce, bankruptcy, care fees, and financial mismanagement. They also provide greater control over how and when your estate is passed on after death and, when used appropriately, can form part of effective inheritance tax planning. Where beneficiaries are young, vulnerable or not yet financially responsible, trusts can include tailored provisions to safeguard their inheritance until the right time. Ultimately, a trust can provide peace of mind by ensuring your affairs are carefully considered and helping to reduce the likelihood of future disputes.

Typically, a trust may be appropriate if:

• You have children or grandchildren, and want to provide for them in a structured way
• Your family circumstances are complex, such as blended families or second marriages
• You want long-term protection for your assets, including safeguarding them for future generations
• You want greater control over your estate, and how it is managed and distributed
• A loved one is vulnerable or receives means-tested benefits, and you want to protect their[CM1.1] entitlement to benefits in a legally allowed way while offering support.

As part of a trust, a trust deed is in place which sets out how the assets can be used, who may the beneficiaries are, and any specific conditions or restrictions that apply.

There are three key roles involved in a trust:

1. Settlor – the person who creates the trust and decides which assets are placed into it.
2. Trustee(s) – the individual or individuals responsible for managing the trust assets. Trustees must act in the best interests of the beneficiaries and have a legal duty to follow the terms of the trust deed, manage assets responsibly, and act fairly and impartially.
3. Beneficiaries – the people or people who may receive income or assets from the trust. Beneficiaries may have a fixed entitlement or may benefit at the trustees’ discretion, depending on the provisions set out in the trust deed.

Understanding the different roles involved in setting up a trust helps ensure the right people benefit, appropriate trustees are appointed, and your wishes are clearly defined.

There are several types of trust, each designed for a specific purpose. The most commonly used include:

Discretionary Trusts

How, when and which beneficiaries receive funds or assets is at the discretion of the appointed trustees, offering greater flexibility. This type of trust is often used for family protection, tax planning, and supporting vulnerable beneficiaries.

Bare Trusts

A bare trust gives the beneficiary a fixed and absolute right to the trust assets. They are often used for children, with assets held by trustees until the child reaches adulthood, at which point they are entitled to take full control.

Life Interest Trusts

One beneficiary has the right to benefit during their lifetime, after which the assets pass to other beneficiaries. This is commonly used to protect children’s inheritance while providing for a spouse or partner.

Trusts for Vulnerable Beneficiaries

Designed to support individuals who are unable to manage their own financial affairs due to factors such as age, disability, illness, or other vulnerabilities. Importantly, they can be structured to provide ongoing financial support while helping to preserve the beneficiary’s entitlement to means-tested benefits, as long as they are implemented properly to avoid breaching benefit entitlement rules.

Trusts are a powerful and flexible way to protect assets, support loved ones and plan for the future. With the right professional advice, a trust can be carefully structured to meet your specific needs and objectives. If you would like further information or tailored advice, please contact our experts.

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