The trust solicitors in our private client team have a deep understanding of the law relating to Trusts and how to use them best as part of your estate and tax planning wealth management. Our team will take the time to identify what success means to you and work with you and your family to achieve your goals. In addition, we will remain by your side throughout the duration of the Trust, advising the Trustees and Beneficiaries to ensure the Trust is operated correctly.
How our solicitors can help you
Experienced, smart, and practical estate planning advice will ensure your Trust is created and run according to your requirements. Our Private Client lawyers provides specialist advice to clients locally across Wiltshire, Hampshire, and Dorset and throughout England and Wales – from our offices in Salisbury, Fordingbridge, Andover and Amesbury.
Our highly specialist trust solicitor, Elizabeth Webbe is a Full member of STEP (known as a TEP, the highest of 7 levels of STEP membership). STEP, the Society of Trust and Estate Practitioners, is a global professional body, comprising lawyers, accountants and trustees who help families with wealth planning. The STEP website describes for members as “internationally recognised as experts in their field, with proven qualifications and experience”.
To speak to one of our specialist Trusts lawyers, please call FREEPHONE 0800 1404544 or one of our local office numbers [see below] for FREE initial phone advice and a no obligation quotation.
What is a Trust?
Trusts involve a person (a Settlor) putting money or assets into a legal structure to be controlled by Trustees according to the directions of the Settlor for the benefit of specific individuals (called Beneficiaries). A trust is a legal body in its own right and can be created by a your Will or set up during your lifetime.
Our team will draft a Trust document and arrange for it to be signed. Before doing so, we will work to understand your situation and advise whether a Trust is the best solution for your circumstances; we will also advise on the tax consequences and benefits of setting up a Trust, both at the outset and during the lifetime of the Trust.
You can be confident our trust solicitors will advise you of any implications and discuss alternative options which may better serve your interests.
Who is the rightful owner trust assets?
The answer is the Trustees. Trustees are the legal owners of property held in trust and their role is to manage the assets according to what has been set out in the trust deed or the Will of the settlor.
Why should I set up a Trust?
There are several reasons for creating this kind of arrangement, including:
· Wealth management and protection – when assets are put into Trusts, you no longer own them. Therefore, provided you set them up correctly, those assets will be protected from future creditors. You can also use Trusts to protect property and/or assets from becoming part of the financial settlement upon divorce. However, using a Trust for this purpose requires expert legal advice because the Courts can claw-back assets from a Trust if the other spouse successfully argues assets were put into trust specifically to prevent them from becoming part of a financial settlement.
· Avoiding care home fees – because it is the Trustees who control the Trust capital, those funds are not considered when assessing the family member’s available assets.
· To provide for vulnerable family members – people often create Family Trusts to ensure family members with physical or mental disabilities are provided for in the future. Because a Trustee manages the property and assets, the Settlor can be confident that those assets and the income will be distributed in a way they believe protects the Beneficiary’s best interests. A trust can even be created to provide for your own needs in the event that you become incapable in some way.
Click here to read more about Wills and the learning disabled
· To protect assets when someone is too young to handle their own finances Investing assets in a family trust make sure that those funds are protected until those children reach an age when they are able to manage the funds responsibly.
· To preserve family assets for future generations
· To pay for the education of future generations – Trusts can be established to direct income for private school and/or university fees of grandchildren or great-grandchildren so funds providing those income are not taxed on your death.
· Tax planning – Trusts can be used as a vehicle to manage how much inheritance tax is paid on your Estate, maximising the amount of your hard earned wealth available to your family. Using a Trust for this purpose requires expert legal advice, which we will provide promptly and in an understandable manner.
For a FREE Inheritance tax saving and estate planning consultation , simply call our Lawyers on FREEPHONE 0800 1404544 or one of our local office numbers [see below] for a no strings attached conversation.
· To minimise probate fees
Who owns the property in a trust?
When property and assets are transferred into a Trust fund, they are no longer owned by the Settlor. Instead, they are the property of the Trust which is managed by trustees for the benefit of the Beneficiaries.
So, for example, this allows you to leave monies to your children or grandchildren – but only when they are old enough to handle it sensibly.
What is the difference between a Will and a Trust?
A Will is a legal document that sets out who should inherit an estate. Money is left directly to an individual or an organisation or placed in trust.
A trust is quite different. It’s a way of holding money. The trustees have control of the funds and have a duty to manage the money properly. The trust assets are for the benefit of those named in the document setting up the trust, usually a trust deed or a Will.
Does a Will override a Trust?
Ideally, a Will and a trust will not conflict. If they do, then the trust will generally prevail. For example, if assets are in a trust but a Will attempts to leave them to someone, they will usually remain in the trust.
What are the different types of Trusts?
Our team will take the time to listen to your needs and objectives and advise on a model that suits you best. That might involve protecting a capital sum for distribution to your beneficiaries in the future – but it might also mean using all or part of the capital as an income for those beneficiaries. Trusts are complex instruments and care and experience are required to draft them properly.
There are a number of different types of trusts which can be used to achieve these ends and which include the following.:
· Bare Trust – also known as a Simple Trust, this enables the beneficiary to gain absolute rights to all the assets contained in the Trust and the income generated from those assets. They are often used to leave property to a beneficiary when they reach 18. However at 18, if the beneficiary needs protection there are ways of managing the beneficiary’s access to the money.
· Discretionary Trust – allows the Trustees to make decisions on how the capital/income is distributed to the Beneficiaries. A Discretionary Trust is often used where there is one Beneficiary who has more pressing financial needs than the others, perhaps due to a disability. These vehicles have the significant benefit of being very flexible in providing for a group of beneficiaries, especially where it is not clear what kind of financial help will be needed in future.
Discretionary trusts are also particularly useful when the settlor has identified someone who is likely to be the main beneficiary, but is uncomfortable about putting the assets completely under the control of that person – perhaps if the beneficiary is bankrupt or in danger of becoming bankrupt, is going through divorce (and there is a wish to avoid the risk of assets passing to a former spouse) or the beneficiary is not financially prudent and will need assistance in looking after the money.
The critical thing is that the trustees have the power to decide- at their complete discretion- as to which of the beneficiaries they benefit with the trust assets, at what intervals, as to how much and indeed, if at all.
The sole right the beneficiaries have is to be “considered” by the trustees. They have no right to demand any funds.
This means that the trustees could – if they wish – to pay out 100% of the trust funds to just one of the beneficiaries, whenever they like.
However the point of the trust is as a means to hold funds for the beneficiaries and pay it out as and when it is good for a beneficiary to receive funds. It is also common, in reality for there to be a principal beneficiary and the others are just there in the background, if the principal beneficiary were say, to die.
The principal beneficiary is not formally designated as such. Often there is a separate Letter of wishes in the background explaining the settlors’ thoughts on the subject.
How much discretion trustees have to make payments depends on how the trust was drafted. The downside is that you lose control over the ultimate destination of the assets.
Among the powers trustees may be given under a discretionary trust are the ability to decide the following:
♦ the level of capital or income to pay to the beneficiary
♦ which beneficiary to pay
♦ how often such payments are to be made
· Inheritance in possession Trust – these are often known as “life interests trusts”. With these, the capital is held in Trust, and the income (less expenses) is passed to the Beneficiaries. Unlike a Bare Trust, the Beneficiary cannot normally access the capital. However, dependent on how the particular trust is drafted, trustees could have the authority to grant a capital sum to the beneficiary, as well as the income from the trust.
This is a useful vehicle for ensuring a spouse is supported with a regular and reliable stream of income following a Settlor’s death, while, at the same time, preserving the capital for future generations.
· Accumulation Trust – this allows the Trustees to accrue income and add it to the fund’s capital assets. These kind of vehicles are usually used to allow capital to be built up until the beneficiary is legally entitled to the assets of the trust
· Mixed Trust – allows for different types of all the Trusts listed above, in accordance with the tax rules applicable to each.
· Settlor-interested Trust – allows the Settlor or their spouse or civil partner to benefit from the fund. This type of fund can be used to provide for the possibility of the Settlor being unable to work for a period of time.
The importance of choosing the right trust
With so many different types of trust available, it is really important to make sure that you create the right one for your own personal circumstances. So, for example, transferring your assets into certain types of trust means that they are no longer subject to Inheritance Tax on your death.
Click here to find out more how our inheritance tax planning solicitors can help you – often using trusts as a key part of your wealth planning strategy
How our Trust Solicitors can help you
Our team have years of experience assisting Settlors, Trustees, and Beneficiaries in all matters relating to Trusts – and in acting as Trustees ourselves.
We can cut through the legal complexities and deliver straightforward, practical advice you can rely on. By instructing us, you can be confident the advice and representation you receive will swiftly provide you with a solution suitable for you.
And if you want to set up a Trust to protect your wealth, we will listen to your aims and ensure the vehicle you create achieves them
In particular, our experienced trust experts can assist you with the following:
· discussing which type of trust suits your personal circumstances best
· advising you on getting the right terms and conditions in the trust
· discussing options to reduce your liability to tax
· making sure that there is no conflict with your will
Our role as professional trustees
As professional trustees, here at Bonallack & Bishop we have particular experience in administration of trusts for beneficiaries with a range of vulnerabilities – including drug and alcohol addiction, mental health problems and brain injuries – as well as for children under the age of 18 and surviving spouses living in the former matrimonial home for the rest of their own lives.
Of course, you may wish to appoint your own trustees and we have experience of working alongside and supporting them.
Do I need solicitors to create a Trust?
It is very difficult to set up Trusts without a Solicitor and any attempt to do so carries the risk of costly mistakes.
Many people come to us to enquire about putting their family home into Trust to avoid it being used for paying care home fees, unaware that the local authority can challenge a Trust if they believe it was set up for the purpose of avoiding paying for care.
In addition, you may have to pay a charge every ten years after the Trust was created, which might mean that the fund is not financially viable.
What kind of property can be placed into Trust?
Any type of assets can be put into your Trust – the most common of which are property and money.
And to give you an idea of the size of the market, recent statistics from HM Revenue & Customs (HMRC), show that the total income and chargeable gains of all trusts and estates in 2021 amounted to a huge £6.51 billion.
Do you pay Inheritance Tax on a house left in trust?
No, placing assets, including property, within a trust means that they do not form part of your estate on death and therefore avoids IHT. The trustees are the legal owners of the house. Putting the ownership of a house into a Trust is quite common when the elderly occupier moves into permanent nursing care.
Building a trust into a Will is something which our Solicitors do routinely. They allow you to clearly set out clear your wishes with regard to your property and the property you leave this is handled. While will trusts have some tax benefits, they are most commonly used to provide ongoing financial support for children and grandchildren.
To achieve this, part of your estate can be invested to provide good returns. Your beneficiaries’ ongoing needs can be regularly assessed to ensure a proper balance of immediate financial support and retaining of capital to provide for future support
Of course, we make sure that all of the legal and tax matters are dealt with as annual returns and accounts are required in law.
Does a will override a trust in the UK?
If drafted properly, it’s usual that these two documents will go hand in hand and work together effectively. However, if there are any conflicts between them, the terms of the Trust will typically take precedence over the terms of the Will – not the other way around.
How long can property remain in a trust?
Trust don’t last forever (unless it is for a charity). Instead they last for a fixed term. This can be for a specific length of time or until someone reaches a certain age (e.g. when a child reaches 25). Alternatively the Settlor may have decided to give the Trustee the power to wind up the Trust at their discretion.
How does a trust come to an end?
There are a number of options to windup a trust:
- passing of time
- death of the beneficiary.
- final distribution of trust assets
- setting aside
- termination by the beneficiaries
Trusts – protecting the vulnerable
Having money can be a blessing and a burden. Particularly to those who do not handle money well. And there are always those out there who are looking to take advantage.
So, one practical solution to this is to protect your vulnerable loved one is by putting their inheritance into a trust which will be managed by solicitors backed with years of technical knowledge and experience in looking after the needs of vulnerable clients.
What is a Personal Injury Trust?
Personal Injury Trusts can be set up to hold the amount of money received from a personal injury compensation payment. Capital held in this way is disregarded for means testing purposes. It allows the recipient of the compensation to have the compensation money without having to lose their entitlement to other government benefits such as:
· Housing Benefit
· Council Tax Benefit
· Disabled Person’s Tax Credit
· Jobseeker’s Allowance
· Income Support
· Employment and Support Allowance
These benefits are means-tested; therefore, if you have a certain amount of money in your bank account, your entitlement could be reduced or even suspended. Setting up a Trust avoids this problem.
Despite the name, a personal injury trust can be used for a range of compensation claims, including medical negligence claims.
What is a secret trust?
A secret trust is a type of trust set up in a Will. A named individual is left money in a Will, but they have secretly agreed to hold it in trust for someone else. It is secret because no-one else will know of the trust’s existence or the beneficiary’s identity.
The person making the Will and the trustee discuss the trust in advance.
This was traditionally a way for individuals to leave money to mistresses and illegitimate children. The deceased instructed the beneficiary to use the money for the person they could not name in their Will.
A fully secret trust is one where the only people aware of the trust are the person making the Will and the trustee to whom the money is left. For obvious reasons, you need to have complete faith in your choice of trustee. Problems can arise where trustees deny the existence of a trust and hold on to the money themselves.
A half-secret trust is similar, but the Will leaves money in trust to the named individual. This means that anyone reading the Will knows that a beneficiary exists, but they will not know their identity.
It is essential to take legal advice from experienced trust solicitors before setting up a secret or half-secret trust to ensure you have protected the funds for the beneficiary as far as possible. If someone challenges a secret trust in the courts, you will need to establish that the deceased had a clear intention to create a secret trust.
You must also discuss the situation with the trustee and ensure they are happy to take on the role.
What is a disabled person’s trust?
A disabled person’s trust allows funds to be protected and paid out as needed to a disabled person. There are several reasons this is better than simply giving the individual the money themselves.
- Firstly, if they receive means-tested benefits, they are likely to lose them if they receive a lump sum of money.
- Secondly, the disabled person might be unable to manage the funds themselves. Setting up a trust means that a trustee can deal with the finance and administration, investing money and paying it out with the disabled person’s best interests in mind.
- Having a trustee can also ensure careful spending of the trust money. A trustee will look at a situation objectively and decide whether or not a proposed purchase is a good idea. They will protect the trust assets long term, so that funds are available for the beneficiary in the future.
The settlor can set up this type of trust during their lifetime. For example, you can leave money to a disabled child now rather than passing it on in your Will. It is still open to you to leave money to the trust in your Will as well.
Another time a disabled trust is useful is when an individual receives a payment after making a personal injury claim. For example, if a child is disabled following medical negligence during or after birth, a trust is often used to look after the money paid to them in compensation.
A disabled person’s trust will usually qualify for certain reductions in tax, including a higher Capital Gains Tax allowance and a tax rebate so that the tax paid by the trust is no more than for an individual.
How are trust assets treated on divorce?
On divorce, the court will examine whether a trust is genuine. It may decide that a trust exists to hide or protect assets. If this happens, the court can act as though the trust assets belong to the party benefiting from them and award this person a smaller share of the matrimonial assets.
If the trust is genuine, then the court will still take into account the income that a beneficiary is entitled to receive when deciding what financial order to make.
If you wish to protect assets in a trust, it is vital to ensure the correct drafting of the trust deed and that the trustees comply with trust rules and regulations. It may be possible to challenge the trust if errors exist and funds are then at risk.
If you are thinking about getting divorced, do get in touch with the 4 specialist lawyers in our family and divorce law team – who are always happy to give free initial phone advice.
Can a trust fund own a business or shares in a UK company?
Trusts commonly own businesses or company shares. It gives the trustees the authority to control the business but ensures that the benefit will pass to the named beneficiaries. This can allow senior family members to retain voting rights while allowing the next generation to benefit from income and dividends. The trustees of a discretionary trust will decide how much to pay to the beneficiaries.
There may be tax advantages to operating in this way. There may also be some protection from issues such as bankruptcy or divorce.
Are trust assets protected from bankruptcy?
The courts may remove funds from trust in certain situations if the settlor becomes bankrupt.
A court will effectively undo gifts made to a trust if they are:
· Put into the trust within two years of the date of an application for bankruptcy
· Put into the trust within five years of the application if the donor was insolvent at the time or making the gift made them insolvent
· Put into the trust at any time if the court believes that the purpose of making the gift was to put assets beyond the reach of creditors
Before putting assets into a trust, you should always speak to one of our expert trust solicitors.
How many trustees do you need?
It is possible to have only one trustee and one beneficiary. However in this case, the sole beneficiary is not permitted to also be the sole trustee. Our trust solicitors always recommend that you have at least two and no more than four trustees. There can be as many beneficiaries as you like.
What Legal Duties Do Trustees Have?
You can choose whoever you wish to be your Trustees – perhaps your spouse or partner, or one or more of your children. However it is vital to select the right Trustees not least because they must act in agreement with each other.
In administering the fund, each Trustee owes a duty of integrity, good faith, honesty, and loyalty to the Beneficiaries. There should be no conflict between the interests of the Trustees and those of the Beneficiaries.
A Trustee should also have a sound knowledge of not only the Trust property but also the circumstances of the Beneficiaries.
Trustees are charged with the following duties:
· Carry out the instructions of the Trust with care and skill.
· Act impartially regarding the Beneficiaries.
· Provide information and accounts when the Beneficiaries ask for them.
· Preserve the value of the fund’s capital.
· To act unanimously unless the Trust document states otherwise.
Our Trust Solicitors provide smart, practical, expert advice to Trustees, skilfully assisting them with any problems and tackling disputes before they get out of hand.
In addition, Bonallack & Bishop are regularly appointed as Professional Trustees ourselves, in cases where the settlor does not feel they have the right person to burden with long-term administration of the Trust.
Click here to read more about appointing Professional Trustee Solicitors.
Who cannot be a trustee?
There are a number of categories of people who simply are not allowed to be a trustee. The most important of these are as follows:
• anyone under the age of 18.
• undischarged bankrupts and those who have entered into an IVA or Individual Voluntary Arrangement
• those in prison or who may soon be convicted of dishonesty.
• those with a conflict of interest with the trust’s beneficiaries
It is also worth taking particular care when it suggested that either a beneficiary or the settlor should be one of the trustees. The best combination is often a balance of professional trustees and trusted family members.
What happens if a Trustee dies?
Where there were at least two trustees originally, a trust can continue to be administered by one surviving trustee. That is why it’s always a good idea to have at least two trustees appointed. However, the remaining trustee needs to appoint a new trustee to replace the deceased trustee.
In addition, if a trustee wants to retire from the trust, there is a provision for them to appoint a replacement by way of a formal deed. Our specialist trust solicitors can help you with that.
Do the Trustees need to hold regular meetings?
That depends on whether the trust is active and on any requirements built into the trust. If the trust is dormant, then there is no need to meet so often.
But as a general rule, annual meetings are often useful. These meetings do not have to be face-to-face – they can be held by phone or video call.
There is no formal requirement for minutes to be taken – but it is always good practice to keep written records of any decisions made or information shared.
Among issues trustees would be sensible to consider on a regular basis are the following:
• any relevant changes in legislation or tax.
• the beneficiaries’ current and future needs
• how the assets themselves are being managed
• approval of trust accounts and signature of tax returns
What can we do if Trustees do not perform their duties?
A Trustee has a legal duty to act in the best interests of the Trust and its beneficiaries (this is known as a fiduciary duty).
If a Trustee breaches their fiduciary duty, they may be liable for that breach. For example, a breach of trust may occur if a Trustee makes investments in a manner not permitted by Statute or personally benefits from the Trust (when the Trust document does not expressly state they may do so).
The Trustee Act 1925 provides several defences for breach of trust, including that the Trustee “acted honestly and reasonably and ought fairly be excused” for the breach.
A Trustee can be removed by exercising an express power set out in the Trust document, under powers conferred by section 36 of the Trustees Act 1925, or by the Court. If a Trustee loses mental capacity, a method for replacement is provided by section 20 of the Trusts of Land and Appointment of Trustees Act 1996.
Are trusts expensive to set up?
Most people, when they think of trust funds, think of very wealthy people. This is a commonly held misconception.
They can be used by a wide variety of people – and are certainly not restricted to the seriously rich. They can prove extremely useful in continuing to protect the ones you love the most, when you no longer can. The tax savings they can produce are often many, many times more than the original cost of setting up the trust in the first place.
Call our specialist team today – they can give you a quote for a bespoke trust that suits your particular circumstances. You will then be able to make an informed decision whether to go ahead.
I hold property and shares in my personal name. How can I pass these on to their children and minimise inheritance tax?
If your children are under 18, then transferring the property to a trust for the benefit of the children is something you should consider.
If they are over 18, and depending on your circumstances, it may be best for some, if not all, of your property to be passed on by way of gifts – because after 7 years, those gift are no longer liable to inheritance tax. However there can be limits on the property you can pass by way of gifts which after 7 years will not be liable to IHT. And remember that trusts and taxation are complex issues. So you should not take any action on this information alone – but speak to one of our specialist trust solicitors who will be able to advise you on your personal circumstances.