Trusts have been around for almost 1000 years and are understood to have begun during the crusades. It allowed landowners to go off to battle and place their estates “in trust” so they could be run efficiently in their absence. If the person making the trust did not return, the assets would then pass onto another person (the beneficiary) in accordance with their wishes.


There are many types of trusts available and it is vital to seek quality legal advice whenever it is being considered but it can be a very effective way to both mitigate inheritance tax and ensure wealth is passed to those you want it to.


The easiest way to think of a trust is as a legal entity. In other words almost like giving birth to a person who has rights and obligations to follow your instructions exactly. Trusts can be used to provide for disabled children, dependent relatives or to make sure your estate passes to your children in the event of divorce (where divorce happens before your death the ex spouse would have no claim). You can also retain benefits such as allowing certain people the right to remain in a property for example but on their death the ownership to pass elsewhere.


Common terms

Please bear in mind this is a very complicated area but for the purposes of explaining, the below may have been over simplified!


Settlor - This is you, or the person making the trust and gifting the asset or property away.


Trust asset - This is the asset being placed into trust and could be a capital sum or your family home. It is very important to recognise that you are giving away permanently your property although you may be able to retain some right of use, for example to continue living there for life.


Beneficiary - This is the person or people who you want to benefit from the trust asset. You can either name specific individuals or nominate “classes” of beneficiary such as “my grandchildren and any further grandchildren that may be born”. You can split this down further and give someone a “lifetime interest” in the asset, for example “my wife may benefit from any income the capital may generate (ie:  the lifetime interest) and on her death the capital passes to my grandchildren”.


Trustee - These are the people legally responsible for administering the trust. You can usually appoint yourself in your lifetime but as the trust will almost certainly outlive you, it is a good idea to specify a number of trustees.  Trustee’s are responsible for abiding by the “trust deed” or in other words the rules.


Trust deed - This is basically the set of rules the trustees must abide by.  It specifies what is to happen with the asset, an example may be: “the trustees are to manage the investments to provide capital growth until my only daughter becomes the age of 21 when she will become absolutely entitled to the proceeds”.


Of course, don’t forget the taxation implications with establishing a trust. Establishing the wrong type of trust can lead to all sorts of problems and costs.


At Financial Fortress we take tax and trust planning very seriously having had years of experience assisting our clients. Your adviser will discuss your options and if a simple trust is required, make some suggestions. Where the need is more complicated, we can then either work with your own legal adviser to formulate a plan or refer you to a trusted and local solicitor.

Tel: 01244 319962

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