So, what are they?
A trust is a legal arrangement where you give property, investments or cash to someone else so they can look after them for the benefit of a third party.
An example of this would be if you put some of your savings aside in a trust for your children.
The roles within a trust
A settlor is the person that establishes a trust. Their role is to legally transfer control of an asset to a trustee, who manages it for one or more beneficiaries.
The trustee is the person who owns the assets in the trust. They have the same power as a person would have to buy, sell and invest their own property. It’s the trustees’ job to run the trust and manage the trust property responsibly.
The beneficiary is the person who the trust is set up for and is usually unable to manage the trust assets for themselves because they are too young or they are not able to manage their own money. The assets held in trust are held for the beneficiary’s benefit.
How can they be used?
There are various types of trust each used for a different objective.
The main three types are as follows: –
Interest in Possession.
The above is when one or more beneficiaries have the right to receive income from the trust or the right to trusts asset during their lifetime. The trust could include both named beneficiaries and beneficiaries appointed by the trustees from a group agreed with the settlor. As an example, children from a marriage.
This gives the trustees, which may include the settlor, the authority to decide who should benefit and in what way. The settlor agrees with a list of beneficiaries, but none of them has an enforceable right to any of the trust assets. The trust documents might say, “for such of my children as the trustees shall in their discretion appoint”.
The above is not really a trust but is more like making a gift. The beneficiary has an immediate and absolute right to both the capital and income. This cannot be taken away. A common example is when an investment is made by a parent or grandparent for the benefit of a child. This is like a gift with the trustees acting on behalf of the child until the child can enter into a legal contract on their own. When the child reaches the age of 18 they can demand that the assets held in the trust are transferred over to them. They then become the absolute owners
Bare trusts can prove to be inflexible. As an example, if more children are born who the settlor would wish to include as beneficiaries. Also in the case of a second marriage or if the child is not a responsible beneficiary at the age of 18.
How Anstee & Co can help you with financial planning.
We are a firm of Independent Financial Advisers (IFA’s). This means that the advice we offer is unbiased. We look at all the financial solutions available to you from the “whole of market”.
To find out more why not contact us to arrange a meeting. The initial “getting to know you” meeting is at our expense and is without obligation. The meeting can be arranged at a time and place that is convenient for you. This may be at your home, place of work or one of our offices located at: –
London, Pall Mall, Greater London
Additionally, our Financial Planners live and make use of meeting rooms in: –
Market Harborough, Leicestershire
Northampton, Wellingborough, Towcester and Brackley in Northamptonshire
The information contained in this newsletter is for information purposes only and does not constitute advice. No action should be taken based on this information alone.