Trusts
What is a Trust?
A Trust is a legal arrangement that allows a person, known as the settlor, to transfer their assets to a trustee. The trustee holds and manages these assets on behalf of one or more beneficiaries according to the terms and conditions specified in the trust document. Trusts offer a flexible and effective means to safeguard assets, distribute wealth, and fulfil specific intentions beyond the scope of a traditional Will.
Wills can include instructions to set up a Trust.
What does a Trust do?
A trust serves several purposes, depending on the specific goals of the settlor. Some common objectives of creating a trust include:
Asset Protection: Trusts can shield assets from potential risks such as creditors, bankruptcy, or ensuring their preservation for intended beneficiaries.
Wealth Preservation: Trusts facilitate the preservation of family wealth over generations by establishing rules for the distribution and management of assets.
Probate Avoidance: Unlike Wills, trusts do not typically go through probate, allowing for a more efficient and private transfer of assets to beneficiaries.
Tax Planning: Trusts can be utilised to minimise tax liabilities, taking advantage of various tax strategies and exemptions.
Lifetime Trusts Vs Will-based Trusts
There are two main categories of trusts: Will-based trusts and lifetime trusts.
Will-Based Trust: A Will-based trust, commonly known as a testamentary trust, is created within a Will and only becomes active upon the death of the settlor. This type of trust allows the settlor to provide instructions regarding the management and distribution of assets after their passing.
Lifetime Trust: A lifetime trust, also known as an inter-vivos trust, is established during the settlor’s lifetime. It allows for the transfer of assets into the trust, which are then managed by the trustee and distributed to beneficiaries according to the terms outlined in the trust document.
Common Types of Trust
Protective Property Trust: This trust is designed to protect the family home and enable a couple to jointly own their property while ensuring that the surviving partner can reside in the property for the remainder of their life. Upon the death of the survivor, the property is distributed to the ultimate beneficiaries, often children or other designated individuals.
Asset Protection Trust: An asset protection trust safeguards assets from potential creditors and legal claims. By transferring assets into the trust, the settlor retains some control and benefit while minimizing the risk of loss due to unforeseen circumstances.
Vulnerable Persons Trust: This trust is created to provide support and financial security for individuals who may lack the capacity to manage their affairs independently. It ensures that their needs are met and their assets are managed responsibly by a trustee.
Bare Trust: A bare trust, also known as a simple trust, grants the beneficiary complete ownership and control over the trust assets. The trustee holds the assets in their name but has no discretion or decision-making power regarding their management or distribution.
General Discretionary Trust: A general discretionary trust offers flexibility in distributing assets among a group of beneficiaries. The trustee has discretion in determining how and when to distribute the assets, taking into account the individual circumstances and needs of the beneficiaries.
Trusts provide individuals with invaluable tools to protect and manage their assets, ensuring their intended distribution, while offering various benefits such as asset protection, tax planning, and efficient wealth transfer. Consulting with an experienced professional can help you determine the most suitable trust structure for your specific circumstances and objectives.