Trusts

A Trust is an arrangement that is set up to hold or protect assets (whether investments of cash/shares/bonds or property) for the benefit of named persons (the beneficiaries) or for a specific purpose.

A Trust can be created during your lifetime or in your Will. Those which are included in your Will will only come into existence upon your death.

When creating a trust, you are entrusting the management and control of the assets held in the trust to your chosen Trustees.

Your Trustees will manage these assets on behalf of your chosen beneficiaries. There are strict duties placed upon your trustees to ensure that they carry out their role as Trustees under the terms of the trust (and any relevant statutory duties) correctly.

Trusts involve:

• The ‘settlor’ – the person who puts assets into a trust.
• The ‘testator’ – the person making a Will where a trust is included.
• The ‘trustee’ – the person who manages the trust.
• The ‘beneficiary’ – the person who benefits from the trust.

Trusts are set up for a number of reasons, including:

• The protection of assets for your children
• To maintain assets within the family
• To protect family assets upon divorce or separation from a partner
• To manage the financial assets of a minor beneficiary (under the age of 18)
• To manage the financial assets of a vulnerable beneficiary (due to mental or physical incapacity, financial irresponsibility, risk of bankruptcy, or substance abuse issues)
• Lifetime Inheritance tax planning
• To pass on assets to specific beneficiaries during your lifetime
• To pass on assets to specific beneficiaries after your death – this is known as a ‘Will Trust’)

What is a Will Trust?

These are trusts which are created within your Will to allow you to protect your assets upon your death. The Will is the trust document which sets out the terms of the Trust. The trust comes into existence upon your death allowing the named trustees to manage the trust assets on behalf of the beneficiaries.

How Can a Will Trust be beneficial?

Will trusts can be very beneficial in the estate planning process. They can help you to:

• Minimise an inheritance tax liability
• Preserve a beneficiary’s entitlement to means-tested benefits
• Protect assets from creditors or divorcing partners & bankruptcy
• Allow assets to remain in the family

Types of Will Trust

• Discretionary Trust
• Special Needs & Disability (SND) Trust
• Bare Trust
• Property Trust

Under a Discretionary Trust, no one named beneficiary of the trust has an automatic entitlement to either the income or capital of the trust assets. Instead, it is at the trustee’s discretion as to who any payment is made to and how much.

The terms of the Trust provide the Trustees powers in relation to the management and control of the trust assets and you can prepare a “letter of wishes” to leave for your Trustees to provide guidance as to your wishes

As each Letter of Wishes is personal to you, it will serve as a guide for your Trustees with regard to the following:

• Who may be regarded as the primary beneficiary
• The types of payments to consider making
• Any rights to consider over any specific assets
• Type and frequency of any payments
• Your reasons for making such decisions

Discretionary trusts may be used as follows:

• To provide for a long-term future need
• To Protect against third party claims e.g. bankruptcy or divorce
• As a form of protection for vulnerable beneficiaries

Due to the specialist nature of this type of trust We are required to work alongside your Financial Advisor, Accountant or specialist tax advisor where appropriate when preparing your Trust document to ensure that it meets your individual requirements.

You may consider setting up a trust for a vulnerable or a disabled beneficiary who is living with a medical condition that would place them within the MHA1983 or the MCA 2005. They may also be in receipt of or entitled to receive one of the following benefits:

• Attendance Allowance
• Disability Living Allowance (either the care component at the highest or middle rate, or the mobility component at the higher rate)
• Personal Independence Payment
• an increased disablement pension
• Constant Attendance Allowance
• Armed Forces Independence Payment

These are specialist protective trusts as they:

• Permit the management of funds for a vulnerable beneficiary
• Protect the beneficiary’s entitlement to means tested benefits
• Benefit from ‘special tax treatment’ with HMRC

It is understood that parents and family members want to provide for the future financial security of their beneficiaries who are unable to manage their own affairs due to physical or mental incapacity.

Again, you can leave a Letter of Wishes for your Trustees (see above).

Assets can be left in a bare trust and looked after by your chosen trustees until a minor beneficiary reaches the age of 18 years old or an age stipulated in your Will.

Once your beneficiaries reach the age set out in the Will, the trust ends and they are entitled to the capital and income of the trust immediately.

A property trust is a specialist trust which enables the co-owners of a property to leave their shares in the property to a specific beneficiary. There are many reasons for this:

1. Protection of your assets for your children should the spouse/partner remarry in the future
2. Protection of your assets should you require residential care in the future
3. Keeping your assets within your own family
4. Protection of your assets upon separation from a spouse/partner
5. Provision of a right to reside for a non-owning occupier of the property

For this type of trust to work the property must be owned as tenants in common which defines the individual shares each owner holds in the property. We will carry out the necessary checks on your property and discuss this with you.

A trust is then included in the Will which will come into existence on the death of the first owner to permit the surviving co-owner to remain living in the property under the terms of the trust (which are bespoke to your individual circumstances) but the deceased’s share in the property is left to the beneficiaries named in the Will.

What is a Lifetime Trust?

Unlike a Will Trust, a Lifetime Trust is created during your lifetime and comes into existence once all parties have signed the Trust document. These types of trusts are protection trusts which serve to keep your assets safe and secure, to protect yourself and your beneficiaries.

How Can a Lifetime Trust be Beneficial?

Like a Will Trust, a Lifetime trust can:

• Assist with Tax planning
• Protect any entitlement to a means tested benefit
• Protect assets from creditors or divorcing partners
• Provide for future beneficiaries

In addition to this you can:

• Be a Trustee and retain some control during your lifetime
• Choose who your trustees are
• Monitor decisions made by the trustees, to make sure that your wishes for the trust are being met

Types of Lifetime Trust

• Personal Injury Trust
• Discretionary Trust
• Declarations of Trust (to protect/safeguard/create an interest in a Property)

If you have been awarded compensation from a personal injury claim or from your insurers directly, you must also consider whether you need to protect your compensation award.

If you or your partner are in receipt of a means-tested benefit such as:

• Jobseekers Allowance
• Housing Benefit
• Council Tax Benefit
• Income Support
• Universal Credit

You may not be eligible for those benefits once you receive your compensation.

The way to protect both your compensation award whilst retaining yours or your partner’s eligibility to means-tested benefits is to consider a personal injury trust.

Crucially, any damages held in a Personal Injury Trust will be disregarded when assessing your eligibility for means-tested benefits. As a result, you quite rightly have access to your full personal injury compensation and your means-tested benefits.

Once you are aware of an award of compensation being made it is beneficial to seek advice with regard to Personal Injury Trusts to ensure that you are aware of your obligations concerning the specific rules and reporting criteria that are required to be met.

A Declaration of Trust can be used as follows:

• To provide for a third party (non-legal owner) interest in a property
• To set out the unequal investment/shares in a property by the legal owners
• To protect any type of financial investment in a property
• To provide a right to reside in the property with specific conditions
• To gift an interest to a third party in the property

These documents are bespoke to you and your individual circumstances. We will discuss with you your intentions and what you wish to achieve and provide you with the relevant specialist advice.

As these documents will involve your property, you will require specialist advice from our sister team, Oakwood Property Solicitors, who will deal with registering the Declaration of Trust on your property. Your document can be prepared in readiness for the completion of a forthcoming property purchase.

You want to make sure that your trusts achieve their financial aims and fit with your particular needs and circumstances – Oakwood Solicitors can assist you through this process and provide you with the necessary advice.

Our team has gained an excellent reputation amongst local organisations and their client-base for delivering a personal and compassionate service. As a firm, we pride ourselves on having a high standard of customer service and making all our current and potential clients feel at ease when making any decisions regarding their future wishes.

We will assess your situation and consider whether you require a trust. We will recommend the type of trust that suits your needs, help you to choose your trustees and we will prepare the trust document and provide guidance to your trustees as required.

Should you not have any suitable persons to act as your Trustees, we offer a Professional Trustee Service.

You will have a dedicated advisor who will work through the process with you from start to finish, assisting you in the event of any queries or issues you may have. We will ensure the process is as stress-free and effortless as possible.