Last updated on August 9th, 2022 at 10:48 am
What are the different types of trusts?
Trusts are a legal vehicle enabling you to pass on assets and control how those assets will be managed and used. There are many different types of trusts, and the kind of trust you establish will depend on what you want to achieve. If you are thinking of setting up a trust fund, then keep on reading. Graysons’ team of trust solicitors in Sheffield and Chesterfield highlight some of the most popular types of trusts, as well as the benefits of trusts and how you can set up a trust.
What is a trust?
A trust is a legal vehicle to transfer assets from the settlor, sometimes known as a trustor, to another party, known as the trustee. The trust is set up for the benefit of beneficiaries. There are various different types of trusts, depending on what the desired outcome of the trust is. Trusts have multiple benefits, including giving the settlor, acting through trustees, control of how funds are used and managed. This can be especially useful when the beneficiaries are minors or are incapable of managing their financial affairs. Trusts may also help lower inheritance tax.
What are the most popular different types of trusts?
There are many different types of trusts. Here is a guide to some of the most popular.
This is the simplest type of trust and is sometimes called a Simple Trust. This type of trust gives the named beneficiary or beneficiaries the immediate and absolute right to the trust’s capital, known as the trust fund, and the income received from the trust. Bare Trusts are a useful legal vehicle for passing assets on to minors, for example, with trustees managing the trust until the beneficiary or beneficiaries are aged 18.
Interest in Possession Trusts
This type of trust gives the beneficiary entitlement to the income from the trust and in some cases the right to occupy property. This is often for a fixed time frame. However, the trust is usually set up to benefit the beneficiary or beneficiaries for the duration of their life, in which case they are known as Life Tenants. On the death of a life tenant, the capital of the trust passes on to other named beneficiaries. This type of trust is suitable for people who have re-married but have children from a previous marriage. By setting up this type of trust, you can ensure that your spouse still benefits from the trust’s income and/or a right to occupy property, but that on their death, your children will inherit the trust’s capital.
This type of trust gives the trustees discretion on how the trust’s income or even it’s capital is to be applied and how each named beneficiary should benefit from the trust. This trust may be helpful if you have several children, or grandchildren, with varying needs and changing financial circumstances. The legal framework of this trust enables the trustees to help each beneficiary when needed, rather than giving each beneficiary a set income regularly.
As the name of this trust suggests, a mixed trust will incorporate several elements of various different types of trusts. Mixed Trusts are often used by people who have children of different ages. For example, some of the assets may be set up as a Bare Trust, whereas other parts of the trust may operate under the legal framework of an Interest in Possession Trust.
A Charitable Trust provides a tax-efficient framework for targeted and effective charitable giving. In fact, a Charitable Trust is legally a charity in and of itself. The trust works in much the same way as other trusts, but the beneficiaries must be charities. A Charitable Trust may be suitable if you want to donate to charitable causes regularly, or you want to ask others to contribute to the trust’s fund.
This type of trust only starts to operate on the settlor’s death. The trust operates in accordance with the settlor’s instructions in their last will and testament. A Testamentary Trust can be beneficial if you have young children or grandchildren who you want to provide for. For example, the Testamentary Trust can state that children or grandchildren will benefit from certain assets once they reach a certain age, graduate, or even get married.
If you want to set up a trust, you should work with an experienced trust solicitor, such as Graysons’ team of Sheffield and Chesterfield solicitors. They will be able to listen to your needs and wishes, and then advise on the best type of trust for your desired outcome.
What are the primary duties of the participating parties in a trust?
There are three key participating parties in a trust; the settlor, sometimes known as the trustor, the trustees, and the beneficiaries, with each having clearly defined positions.
- The settlor or trustor – This is the person who establishes the trust and transfers the assets, known as the trust fund. The settlor establishes the rules of the trust and states how the trust should be managed. The assets, sometimes known as the trust property, can include anything of value, including cash, stocks and shares, investments, artworks, pensions and life insurance policies, as well as property.
- The trustee – This is the person or persons who manages the trust fund in accordance with the wishes of the settlor. The trustees are chosen by the settlor and are usually trusted family members or friends or a professional. However, the trustee can also be a company. A trust must have at least one appointed trustee, and trustees can change throughout the lifetime of the trust. The amount of discretion the trustees have on how the trust can be managed depends on the type of trust that is set up by the settlor and what rules they have put in place.
- The beneficiary – This is the person or persons who benefit from the trust. The beneficiary could also be an entity, such as an organisation or charity, or may even be a pet or pets. The settlor stipulates who the trust’s beneficiaries are, and the trustees must manage the trust fund for the benefit of the beneficiaries.
Usually, the settlor, the trustees, and beneficiaries are all different people. However, they don’t always have to be. For example, a trustee or a settlor of a trust can also be a beneficiary, depending on the type of trust used and the desired outcome of the trust. An experienced trust lawyer, such as Graysons’ Sheffield and Chesterfield solicitors, will be able to advise on how to structure the trust to achieve your desired outcome.
What are the benefits of setting up a trust fund?
There are several benefits to setting up a trust fund. Trusts can be a tax-efficient way to pass on assets to loved ones. They can also protect personal and family wealth and ring-fence assets from creditors, lawsuits and bankruptcy cases as the assets in the trust are no longer viewed as the personal possession of the settlor.
Who can set up a trust?
Anyone can set up a trust. However, if you want to set up a trust fund, you should work with an experienced trust solicitor, such as Graysons’ team of solicitors in Chesterfield and Sheffield.
How can Graysons’ team of solicitors in Sheffield and Chesterfield help me set up a trust fund?
Graysons’ team of solicitors in Sheffield and Chesterfield have helped thousands of people successfully set up a trust fund. Our experienced trust lawyers will listen to what you want to achieve from a trust and then advise you on the different types of trusts and which trust would be appropriate for your personal circumstances. If you want to set up a trust fund, then contact our team of trust solicitors in Chesterfield and Sheffield today for a free, no-obligation consultation.