What are Trusts?

A trust fund's aim is to protect your possessions while also ensuring that your loved ones are financially secure in the future. Importantly, a trust can help you avoid paying expensive inheritance taxes and ensure that the majority of your money, stocks, and other assets are passed on in the most effective manner possible.

It can also give safe and secure protection for those who are vulnerable due to a handicap, learning challenges, or inability to govern their finances.

What is a ‘Trust’?
A trust is a legal framework that allows you to manage your possessions. There are various sorts of trusts, each of which is taxed differently. You can read more details in our article New Zealand Foreign Trust.

Who are the people involved in trusts?
It is a legal arrangement in which one or more people (the trustee) own and manage assets for the benefit of another person or people (the beneficiary). The settlor is the one who provides the assets. We will continue to provide a more elaborate explanation of what each role does within this process:

Beneficiary
There could be multiple beneficiaries, such as a family or a designated group of people. They may benefit from the following:

the income derived only by a trust, such as through the rental of a trust-owned home
only the capital, such as receiving shares in a trust when they reach a particular age.
both the trust's income and capital

Settler
The settlor determines how the trust's assets shall be spent, which is frequently detailed in a document known as the 'trust deed.' This is known as the settlor-interested trust which has specific tax laws because the settlor can sometimes benefit from the assets in the trust.

Trustee
The legal owners of the assets held in a trust are the trustees. The trust can remain even if the trustees change, but there must always be at least one trustee.

What are the different types of trusts?
Depending on how you wish to manage your assets, there are a variety of trusts that can be established. We'll go over some of the options in the list below:

Bare Trust

This is the simplest trust, and it distributes all assets to the beneficiary if they are at least 18 years old (in England and Wales).

In a bare trust, the assets are held in the name of the trustee. If the beneficiary is 18 years old or older, they have the right to access the trust's contents at any time (in England and Wales). This means that the settlor's assets will always be directed to the beneficiary.

Bare trusts are frequently used to pass assets on to young individuals, with the trustees caring for the assets until the recipient reaches the age of majority.

Discretionary Trust

The assets and revenue generated by them are completely under the discretion of the trustees, who decide how and when to distribute them to the beneficiaries.

This type of trust can be established for grandchildren, with the grandchildren's parents serving as trustees.

Mixed Trust

This combines components from many trusts. It could, for example, provide the beneficiary with a claim to half of a trust fund's income (known as an interest in possession).

Trust in Wills

The sorts of trusts outlined above are included in your will, but they only take effect after you die and are dependent on your circumstances. When addressing all areas of future and estate planning, these should be explored.

Can I end a Trust?
The manner in which a trust can be terminated is determined by the type of trust involved. Some trusts expire when a beneficiary reaches a certain age or dies, while others end at the discretion of the trustees. For instance:

the beneficiary's coming of age;
the beneficiary's passing;
as a result of the trustees' decision.

Tax Implications of Trusts
Unlike typical investing accounts, trusts are taxed differently.

Depending on whether the trust is revocable or irrevocable, as well as the sort of income received from the trust, there are different tax laws for beneficiaries of trust income.

We at Persona Finance are aware of the problems and complexities posed by various tax requirements relating to trusts. By providing you with the greatest accounting services, we hope to simplify your overall business demands. Please contact us at [enquiries@personafinance.co.uk] for more information on how we may assist your company.