Last updated on August 9th, 2022 at 10:47 am
How to set up a trust fund for a child?
Setting up a trust fund for a child can help secure their financial future. Trusts, sometimes referred to as trust funds, have many uses. Setting up a trust fund for a child is a tax-efficient way to transfer assets, such as money or property, to your child and allows for better control over how these assets will be managed and used. Trusts are also a helpful tool if you have a child with a learning disability or mental health condition, which means they would be unable to manage their financial affairs once you pass away. A trust is a legal arrangement, and you can set up a trust at any point in your life by using an experienced trust lawyer. If you’re thinking of setting up a trust fund for your child, then keep on reading. Here Graysons’ team of solicitors in Sheffield and Chesterfield answer some of the most common questions about setting up a trust fund for a child.
What is a trust?
A trust is a legal arrangement whereby trustees manage assets on behalf of the trusts’ beneficiaries. The person who provides the assets and sets up the trust is called the settlor. The settlor decides what the terms of the trust should be, who the trustees should be, and who the beneficiaries are. Trustees are usually trusted family members or friends or a professional and they have a duty to manage the trust for the benefit of the beneficiaries. If you want to set up a trust for a child, then you should work with an experienced trust attorney, such as Graysons’ team of Sheffield and Chesterfield solicitors.
What are the different types of trusts?
There are several different types of trusts funds that you can set up for your child, and it is important that you set up the right kind of trust. Here are some of the most regularly used types of trusts:
Sometimes known as a Simple Trust, these trusts give the named beneficiary an immediate right to the assets and any income generated from the trust. As the name suggests, they are the most basic type of trust fund. With a Bare Trust, the settlor has peace of mind that all the assets in the trust will go directly to the beneficiary or beneficiaries as long as they are aged 18 or over. It is important to note that once a Bare Trust has been set up, the beneficiaries cannot be changed. Bare Trusts are often used as a tax-efficient means of passing assets directly to children and are a popular type of trust fund for a child.
Interest-in Possession Trusts
This type of trust entitles the beneficiary to the income that the trust generates. The beneficiary is known as a “Life Tenant” if they benefit from the trust’s revenue for the duration of their life or have the right to occupy property. On the Life Tenant’s death, the capital of the trust is usually passed on to other named beneficiaries. These types of trusts are usually set up to provide the beneficiary or beneficiaries with a lifetime income. They are particularly useful to provide a spouse with an income, or in the case of property, a home, and to then pass on the capital intact to any children once the spouse is deceased.
Sometimes known as Accumulation Trusts, these types of trusts give discretion to appointed trustees to decide which of the named beneficiaries should benefit from the trust, how, and when. Potential beneficiaries can include people who are not born yet, so it is a useful trust to set up if you believe you may have more children in the future, or perhaps for grandchildren that may not be born yet. It is also a helpful type of trust if you have a child who struggles to manage their financial affairs, leaving it to the discretion of the trustees who can effectively ‘defer’ their rights to assets until they are able to manage their finances appropriately.
Vulnerable Beneficiary Trusts
These types of trusts are purposefully designed for children, i.e. people under 18 whose parent or parents are deceased, someone who is disabled, or someone who is unable to manage their affairs due to a mental health condition. The trust fund protects the assets for the beneficiary and ensures that only they benefit from it. Vulnerable Beneficiary Trusts can also be tax efficient.
As the name indicates, these types of trusts are a combination of more than one type of trust. Sometimes known as Hybrid Trusts, these trusts incorporate several elements of different trust structures. For example, in a mixed trust, some assets may be managed on the basis of a Discretionary Trust, while others may be treated on the basis of a Bare Trust. This type of trust fund is particularly advantageous if you have children who are 18 and over and others who are still under the age of 18.
An experienced trust lawyer, such as Graysons’ trust solicitors in Sheffield and Chesterfield, will be able to advise which type of trust structure best meets your children’s needs.
What are the benefits of setting up a trust fund for a child?
There are several benefits to setting up a trust fund for a child. Trusts can be a tax-efficient way to pass assets on to your children, and they can enable you to control how and when the assets from the trust are used. A trust can also give you peace of mind by providing your children with guaranteed financial security later in life, by ring-fencing assets and stating how the beneficiaries can use assets from the fund.
Who can set up a trust fund for a child in the UK?
Anyone can set up a trust fund for a child in the UK. Before setting up a trust fund, you will need to decide who should be the trust’s trustees – usually family members or close friends or a professional – and what you want to achieve from the trust. A trust attorney, such as Graysons’ Sheffield and Chesterfield solicitors, will be able to help you set up the right type of trust for your needs.
Should I use a trust lawyer to set up a trust fund for my child?
Setting up a trust fund for a child can be complex; the documents must be clearly drafted, be legally binding, and the provisions must be exact to ensure there is no ambiguity, something which could be costly in the future. Therefore, it is essential that you work with an experienced trust lawyer, such as Graysons’ team of solicitors in Sheffield and Chesterfield. Contact us today if you want to set up a trust fund for a child.
How can Graysons’ solicitors in Sheffield and Chesterfield help me set up a trust fund for my child?
Graysons’ team of solicitors in Sheffield and Chesterfield are experienced trust lawyers. Our team have helped thousands of people successfully set up trusts for their children. As a law firm with STEP accredited lawyers, you can trust our team of experienced trust attorneys to offer expert advice and service that represents your best interests and secures your family’s future. Contact our Sheffield and Chesterfield solicitors today.